[FSR LOGO] 

VIA http://www.regulations.gov 

July 21, 2015 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Re: Revised Definition of Investment Advice and Related Exemptions 

Ladies and Gentlemen: 

I have attached the Financial Services Roundtable’s ( “FSR”) 1 comments on the 

United States Department of Labor’s (the “Department”) proposals regarding the (1) 

Definition of the Term “Fiduciary”; Conflict of Interest Rule—Retirement Investment 

Advice,2 (2) Best Interest Contract Exemption (the “BIC Exemption”),3 (3) Principal 

 1

 As advocates for a strong financial futureTM, FSR represents the largest integrated financial 

services companies providing banking, insurance, payment, and investment products and services to 

the American consumer. Member companies participate through the Chief Executive Officer and 

other senior executives nominated by the CEO. FSR member companies provide fuel for America’s 

economic engine, accounting directly for $92.7 trillion in managed assets, $1.2 trillion in revenue, and 

2.3 million jobs. 

2

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Definition of Term “Fiduciary”; 

Conflict of Interest Rule—Retirement Investment Advice [RIN: 1210-AB32], 80 Federal Register 

21928 (Apr. 20, 2015) (the “Re-Proposing Release”), available at http://www.gpo.gov/fdsys/pkg/FR2015-04-20/pdf/2015-08831.pdf. 

3

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Best Interest Contract 

Exemption, Application No. D-11712 [ZRIN: 1210-ZA25], 80 Federal Register 21960 (Apr. 20, 

2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08832.pdf. 
2 

Transaction Exemption,4

 and (4) related amendments to four existing prohibited 

transaction class exemptions5 (collectively, the “Proposal”). 

FSR supports a “best interests” standard that would be applicable to investment 

products and services provided to Americans. However, FSR strongly disagrees with key 

aspects of the Proposal, as well as certain premises and presumptions underlying the 

Proposal. FSR also believes assumptions relating to the likely economic impact of the 

Proposal, such as costs of legal and other services required to implement fully the 

Proposal, are flawed. Adoption of the Proposal also exceeds the authority of the 

Department to promulgate regulations, as Congress had accepted the currently effective 

40-year old definition of investment advice, and the Department’s actions otherwise 

conflict with expressed Congressional intent regarding the application of ERISA’s 

substantive provisions to Individual Retirement Accounts (“IRAs”) and the scope of the 

responsibilities of fiduciaries who provide advice to persons who direct their own 

investments. 

Nonetheless, if the Department ultimately determines to adopt its preferred policy 

alternative substantially in the manner as set forth in the Proposal, FSR presents in 

APPENDIX A guidance regarding how the Department can address significant deficiencies 

 4

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs, Application No. D-11713 [ZRIN: 1210-ZA25], 80 Federal Register 

21989 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08833.pdf. 

5

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendment to Prohibited 

Transaction Exemption (PTE) 75-1, Part V, Exemptions from Prohibitions Respecting Certain 

Classes of Transactions Involving Employee Benefit Plans and Broker-Dealers; Prohibitions 

Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain BrokerDealers, Reporting Dealers and Banks, Application No. D-11687 [ZRIN: 1210-ZA25] 80 Federal 

Register 22004 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08836.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendment to and 

Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain 

Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies 

and Investment Company Principal Underwriters, Application No. D-11850 [ZRIN: 1210-ZA25], 80 

Federal Register 22010 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08837.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed 

Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 86-128 

for Securities Transactions Involving Employee Benefit Plans and Broker-Dealers; Proposed 

Amendment to and Proposed Partial Revocation of PTE 75-1, Exemptions From Prohibitions 

Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks, Application No. D-11327 [ZRIN: 1210-ZA25], 80 Federal 

Register 22021 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08838.pdf; and DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendments to 

Class Exemptions 75-1, 77-4, 80-83 and 83-1, Application No. D-11820 [ZRIN: 1210-ZA25], 80 

Federal Register 22035 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08839.pdf. 
3 

in the Proposal. We also present FSR’s Simple Investment Management Principles and 

Expectations Prohibited Transaction Class Exemption (the “SIMPLE PTE”) that would 

address the Department’s public policy goals while better addressing the needs of 

Retirement Investors6

 by mitigating the burdens imposed on Retirement Investors as a 

result of implementation of the Department’s Proposal. 

Executive Summary

a. Principal Concerns 

FSR’s principal concerns with the Department’s Proposal and the BIC Exemption 

include: 

(1) The Proposal would adversely affect Americans’ ability to plan and save for 

retirement, because it would limit access to affordable retirement savings advice and 

guidance from their preferred financial professionals. Studies confirm the impact would 

be especially pronounced on low and moderate income individuals, younger employees, 

and members of minority communities. 

Impacts on separated and retired employees. Former employees, retirees, and persons 

nearing retirement who need advice on alternatives other than taking a lump-sum 

distribution from their 401(k) plan (including IRA rollovers) would be particularly 

impacted by the Proposal. 

Impacts on Americans employed by small businesses. An estimated 19 million 

Americans do not have a workplace retirement plan. The Proposal would no longer 

allow financial professionals to provide guidance (including a “menu” of investments) to 

small business owners contemplating or maintaining a plan for their employees. 

(2) FSR supports a best interest standard, but the Department’s approach is 

impractical. The BIC Exemption’s complexity imposes undue burdens and costs on 

Retirement Investors, as well as on the individuals and firms who serve them, and the 

benefits of the exemption do not outweigh the burdens. 

 6

 Retirement Investor means: (1) a participant or beneficiary of a plan subject to Title I of Employee 

Retirement Income Security Act (“ERISA”) with authority to direct the investment of assets in his 

plan account or to take a distribution; (2) the beneficial owner of an individual retirement account 

(“IRA”) acting on behalf of the IRA; or (3) a plan sponsor as described in ERISA section 3(16)(B) (or 

any employee, officer, or director thereof) of a plan subject to Title I of ERISA to the extent it acts as 

a fiduciary for the plan. This definition excludes non-retirement accounts in section 408; however, if 

the Department ultimately decides to include these non-retirement accounts, the definition of 

“Retirement Investor” also would include the owners of those accounts, 
4 

Impacts on Retirement Investors. Retirement Investors often interact with financial 

professionals by telephone and, in the case of market transactions (purchases or sales of 

securities, for example), buy or sell orders must be entered before the market moves 

adversely to the client’s desired position. 

The Proposal would dramatically impact the way Retirement Investors interact with their 

financial professionals (e.g., requiring Retirement Investors to sign a contract before 

deciding whether or not they want to hire a particular financial professional, and review 

voluminous disclosures on all possible investments). Such burdens will likely discourage 

savings or cause missed market opportunities. 

Impacts on financial professionals and financial institutions. The Proposal will require 

financial professionals and financial institutions to design, develop, test, implement, and 

maintain extensive new information technology and compliance systems and controls to 

meet overbroad disclosure obligations that will require financial professionals and 

institutions to produce voluminous catalogs of disclosures on all possible investment 

products. The Securities and Exchange Commission has found investors generally favor 

clear and concise disclosures. 

The Department grossly underestimates expenses associated with compliance—which we 

understand may be as much as $100 million individually for some financial institutions, 

depending on the size and nature of their business operations. Although the Department 

estimates 60 hours of legal time to rely on the BIC Exemption, certain of our members 

estimate that they have already incurred at least 200 hours of legal time (excluding the 

fees and expenses incurred by outside counsel) just to review the intricate and complex 

requirements of the BIC Exemption. Moreover, financial institutions would need at least 

thirty-six (36) months to build new systems that would enable them to comply with the 

BIC Exemption—not the eight (8) months the Department estimated.

(3) The BIC Exemption’s conditions are not necessary to protect Retirement Investors. 

The intricate and complex provisions of the BIC Exemption impose many limitations on 

Retirement Investors not needed to implement a best-interest standard. For example, 

only limited types of investment assets are permitted. As a result, if an investment in 

options, futures, hedge funds, or foreign securities would be in the best interest of a 

Retirement Investor, a financial professional or institution that relies on the BIC 

Exemption could not recommend those otherwise prudent investments to its client. The 

Department has also not made allowance for financial professionals to serve pre-existing 

clients with assets that are not on the Department’s approved list (“legacy assets”). 

Because their financial professional does not have clear authority from the Department to 

provide continuing advice or guidance on these legacy assets, such investments could 

become “orphaned.” 
5 

(4) Impact on Retirement Investors’ personal financial privacy and data security. 

Financial professionals must upon request provide each client’s personal financial data to 

the Department, and the Department may publish data derived from this client 

information (including IRA owner information). Clients are likely to hold their financial 

professional responsible for any harm associated with improper disclosure of their 

personal financial information. 

Such concerns are heightened by the massive data breach at the federal Office of 

Personnel Management that resulted in the theft of highly-sensitive personal information 

(including Social Security numbers) on over 22 million current and former federal 

government employees. The Government Accountability Office continues to warn 

federal agencies of increased vulnerabilities to such cyber threats and the dangers 

associated with outdated and ineffective data systems. The Department must implement 

a comprehensive, robust data security program to mitigate such privacy and data security 

threats. The Department should also solicit public comment on its privacy and data 

security procedures. 

The Department intends to use the data to compare the investment results of clients of 

one financial professional to clients of another financial professional. The benefits from 

publishing this data assuming there are any—even in aggregated form—will pale by 

comparison to damage from unauthorized publication or distribution of sensitive client 

financial information. Because each client will have particular facts that will dictate a 

distinct investment strategy, this data cannot be used to make an apples-to-apples 

comparison with any other client or groups of clients. Accordingly, FSR believes the 

Department should not receive or publish such data. 

b. Summary of Comments 

In addition to the principal concerns above, FSR’s specific comments on the 

Proposal and the BIC Exemption are summarized below: 

 FSR has long-supported harmonizing regulatory régimes applicable to 

securities broker-dealers and investment advisers when providing 

personalized investment advice to clients.7

 

 7

 See FINANCIAL SERVICES ROUNDTABLE, “Study Regarding Obligations of Brokers, Dealers, and 

Investment Advisers” pursuant to section 913 of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 [File No. 4-606] (Aug. 30, 2010), available at

http://www.sec.gov/comments/4-606/4606-2659.pdf (supporting “harmonization of the regulations for 

broker-dealers and investment advisers when providing personalized investment advice to retail 

customers”). 
6 

 FSR supports a “best interest” standard that would be applicable to 

investment products and services provided to Americans, which is 

administered in a coordinated manner by federal agencies and selfregulatory organizations that serve as front-line regulators of the financial 

services industry. An effective best-interest standard must: (1) preserve 

access to professional financial advice that will help savers meet their 

unique financial needs in retirement; (2) enable them to work with their 

preferred adviser; and (3) preserve flexibility to pay for retirement services 

and products in an appropriate manner of their choosing.

 Implementation of the Proposal would adversely impact American 

workers’ access to affordable advice from their preferred financial 

professional(s).

 Investors and financial institutions would benefit materially from the 

Department allowing the Securities and Exchange Commission (the 

“Commission”) through its Office of Compliance Inspections and 

Examinations to: (1) complete focused examinations of registered brokerdealers and investment advisers; (2) identify whether and to what extent 

improper conduct in the provision of retirement products or services has 

occurred; and (3) allow the Commission to develop a best interest standard 

that will protect Retirement Investors and retail investors generally, which 

is informed by actual data from investigations.

 The Proposal would expand the definition of investment advice to include 

the IRA market, in direct conflict with Congressional mandates to the 

contrary that expressly exclude IRAs from ERISA, but instead subjects 

IRAs to coverage under the Internal Revenue Code of 1986.

 The Proposal and the proposed Best Interest Contract Exemption would 

require financial professionals and financial institutions to restructure 

existing business relationships with plans, plan participants and 

beneficiaries, IRA owners, and anyone taking a distribution from a plan. 

The Department’s economic analysis grossly underestimates the costs and 

burdens of restructuring such relationships and compliance costs 

associated with the Proposal and the proposed Best Interest Contract 

Exemption.

 The Department substantially underestimates the implementation period in 

light of extensive changes needed to systems, business operations, and 

compliance controls. 
7 

 The proposed BIC Exemption imposes conditions that are not necessary to 

protect Retirement Investors, and certain permitted investor remedies 

exceed ERISA authority.

 FSR requests the Department provide clarification or relief related to 

application of the Proposal that, among other things, would: (a) permit 

financial professionals and financial institutions to address the needs of 

their currently-existing customer relationships (“grandfathering”); (b) 

exclude all welfare benefit plans (i.e., health insurance, long term care 

insurance, disability insurance, etc.); (c) exclude insurance contract sales 

to welfare benefit plans that do not have an investment component; (d) 

exclude distributions from qualified plans directly into an annuity or 

insurance product in non-qualified plans; (e) allow financial professionals 

and financial services institutions to recommend and sell proprietary and 

other limited range of products and services; and (f) eliminate certain mass 

data gathering requirements that could adversely implicate personal 

financial privacy and data security.8

 8

 See, e.g., Gregory C. Wilshusen, Director, Information Security Issues, “Information Security: 

Cyber Threats and Data Breaches Illustrate Need for Stronger Controls across Federal Agencies,” 

Testimony Before the Subcommittees on Research and Technology and Oversight Committee on 

Science, Space, and Technology, House of Representatives, GAO-15-758T at 2 (July 8, 2015) 

(finding that concerns about cyber-based threats to federal systems “are further highlighted by recent 

incidents involving breaches of sensitive data and the sharp increase in information security incidents 

reported by federal agencies over the last several years, which have risen from 5,503 in fiscal year 

2006 to 67,169 in fiscal year 2014”), available at http://www.gao.gov/assets/680/671253.pdf; 

Gregory C. Wilshusen, Director, Information Security Issues, “Cybersecurity: Recent Data Breaches 

Illustrate Need for Strong Controls across Federal Agencies,” Testimony Before the Subcommittee on 

Cybersecurity, Infrastructure Protection, and Security Technologies, Committee on Homeland 

Security, House of Representatives, GAO-15-725T (June 24, 2015) (warning that “[until] federal 

agencies take actions to address these challenges—including implementing the hundreds of 

recommendations we and inspectors general have made—federal systems and information will be at 

an increased risk of compromise from cyber-based attacks and other threats), available at

http://www.gao.gov/assets/680/670935.pdf; GOVERNMENT ACCOUNTABILITY OFFICE, “High-Risk 

Series: An Update,” GAO-15-290 at 236 (Feb. 2015) (finding that the “number of reported security 

incidents involving [personally identifiable information] at federal agencies has increased 

dramatically in recent years”), available at http://www.gao.gov/assets/670/668415.pdf. See also, 

Cory Bennett, “OPM hack hit over 22 million people”, THE HILL (July 9, 2015) (reporting that “more 

than 22 million people have had their personal information stolen” from the U.S. Office of Personnel 

Management), available at http://thehill.com/policy/cybersecurity/247410-report-opm-hack-hit-over25-million-people; Patrick Zengerle and Megan Cassella, “Millions more of Americans hit by a 

government personnel data hack,” REUTERS (July 9, 2015), available at 

http://www.reuters.com/article/2015/07/09/cybersecurity-usa-idUSKCN0PJ2MQ20150709; Chris 

Strohm, “U.S. Hack May Have Disclosed 18 million Social Security Numbers,” BLOOMBERG 

BUSINESS (June 24, 2015) (reporting that the “agency that manages U.S. government personnel 

records is investigating whether Social Security numbers for as many as 18 people were taken in the 

massive cyber-attack”), available at http://www.bloomberg.com/news/articles/2015-06-24/u-s-hack-
8 

 Banks and other institutions that provide custody or valuation services to 

Retirement Investors provide numerous valuations of assets to facilitate 

the operation of the underlying plans and to provide important information 

to Retirement Investors in the ordinary course of business, and not in 

connection with a planned investment. Yet, the Proposal could apply 

fiduciary duties to these ordinary course administrative functions. 

 It is unclear how the Proposal will impact institutional retirement services 

providers, which provide products or services to groups of employees 

(e.g., group annuity contracts). The institutional service provider’s fees 

have no correlation to its responses to questions raised by employees, 

which employees may perceive as a “recommendation.” 

 The Proposal fails to “consider flexible approaches that reduce burdens and 

maintain freedom of choice.”9

 Instead, it reduces choice for Retirement 

Investors and increases dramatically the burdens for Financial Professionals 

and Financial Institutions. Moreover, the Office of Management and Budget 

directs agencies ‘to specify performance objectives, rather than specifying the 

behavior or manner of compliance that regulated entities must adopt.”10 The 

Proposal does exactly the opposite by imposing a complex regulatory 

structure that, in part, specifies an elaborate set of warranties that must be 

made, requiring Financial Professionals and Financial Institutions to modify 

their compensation structures, and mandating elaborate and specificallyformatted disclosure, while offering little or no clarity regarding specific 

performance objectives. 

 

 may-have-disclosed-18-million-social-security-numbers; Devlin Barrett, Danny Yadron, and Damian 

Paletta, “U.S. Suspects Hackers in China Breached About 4 Million People’s Records, Officials Say,” 

WALL ST. J., (June 5, 2015) (reporting on the alleged theft of personnel records “in one of the most 

far-reaching breaches of government computers”), available at http://www.wsj.com/articles/u-ssuspects-hackers-in-china-behind-government-data-breach-sources-say1433451888?KEYWORDS=office+of+personnel+management; Lisa Rein, “$21 million tab to 

taxpayers for clean up after massive Chinese hack of federal database,” THE WASHINGTON POST (June 

11, 2015), available at http://www.washingtonpost.com/blogs/federal-eye/wp/2015/06/11/nervousemployees-dial-call-centers-a-21-million-casualty-of-massive-federal-data-theft/. 

9

 Regulatory Impact Analysis: A Primer, Office of Management and Budget, available at 

www.whitehouse.gov/sites/default/files/omb/inforeg/regpol/circular-a-4_regualtory-impact-analysisa-primer.pdf. 

10 Id. 
9 

c. FSR’s Simple Investment Management Principles and Expectations 

Prohibited Transaction Class Exemption (SIMPLE PTE) 

FSR recommends the Department adopt a Simple Investment Management 

Principles and Expectations Prohibited Transaction Class Exemption (the “SIMPLE 

PTE”). Such an approach would address the Department’s public policy goals of 

ensuring Retirement Investors receive best-interest advice and that compensation 

received by firms or individuals providing advice is reasonable. The SIMPLE PTE also 

preserves: (a) access to professional financial advice and guidance to help savers plan and 

meet their unique financial needs in retirement; and (b) flexibility to work with their 

preferred financial professional or firm, and pay for retirement products and services in 

the manner of their choosing.11 This approach would allow transaction-based 

compensation, as opposed to fee-based compensation, where it would make more sense 

for both the Retirement Investor and the financial professional or institution. 

* * * * * 

 

 11 The terms and conditions of FSR’s proposed SIMPLE PTE are attached as APPENDIX B. 
10 

FSR appreciates the opportunity to submit comments on the Department’s 

Proposal. We would welcome additional opportunities to engage with the Department on 

the Proposal generally and our specific concerns outlined in APPENDIX A. We also will 

request an opportunity to present testimony at the hearings scheduled for August 10-13, 

2015, under separate cover. If it would be helpful to discuss FSR’s specific comments or 

general views on this issue, please contact me at Richard.Foster@FSRoundtable.org, or 

Felicia Smith, Vice President and Senior Counsel for Regulatory Affairs at 

Felicia.Smith@FSRoundtable.org. 

 Sincerely yours, 

 Richard Foster 

Senior Vice President and Senior 

Counsel for Regulatory and Legal 

Affairs 

Financial Services Roundtable 

Attachments: APPENDIX A, “FSR’s Comments on Revised Definition of Investment 

Advice and Related Exemptions” 

APPENDIX B, FSR’s Simple Investment Management Principles and 

Expectations Prohibited Transaction Class Exemption 

With a copy to: 

The Honorable Thomas E. Perez, Secretary 

The Honorable Phyllis Borzi, Assistant Secretary 

Judy Mares, Deputy Assistant Secretary for Policy 

Tim Houser, Deputy Assistant Secretary and Chief Program Operations Officer 

Joe Canary, Director, Office of Regulation and Interpretation 

Fred Wong, Office of Regulation and Interpretation 

Lyssa Hall, Director, Office of Exemption Determinations 

Karen E. Lloyd, Chief, Division of Class Exemptions, Office of Exemption 

Determinations 

Employee Benefits Security Administration 

United States Department of Labor 

 
11 

The Honorable Mary Jo White, Chair 

The Honorable Luis A. Aguilar, Commissioner 

The Honorable Daniel Gallagher, Commissioner 

The Honorable Kara Stein, Commissioner 

The Honorable Michael Piwowar, Commissioner 

Dr. Mark J. Flannery, Director and Chief Economist 

Division of Economic and Risk Analysis

David Grim, Director, Division of Investment Management 

Stephen Luparello, Director, Division of Trading and Markets 

United States Securities and Exchange Commission 

The Honorable Timothy G. Massad, Chairman 

The Honorable Mark P. Wetjen, Commissioner 

The Honorable Sharon Y. Bowen, Commissioner 

The Honorable J. Christopher Giancarlo, Commissioner 

United States Commodity Futures Trading Commission 

The Honorable Monica J. Lindeen, President 

National Association of Insurance Commissioners

The Honorable William Beatty, President of the Board of Directors 

North American Securities Administrators Association 
i 

 

[FSR LOGO] 

APPENDIX A 

Financial Services Roundtable 

Comments on Revised Definition of Investment Advice 

and Related Exemptions

July 21, 2015 

 
i 

TABLE OF CONTENTS

 Page 

 

I. Introduction ............................................................... 1 

II. Implementation of the Department’s Proposal Would 

Adversely Impact Access to Affordable Advice from Preferred 

Financial Professionals .................................................. 4 

 

a. FSR’s Concerns and Objections ............................... 4 

 

b. FSR’s Simple Investment Management Principles and 

Expectations (SIMPLE PTE) .................................... 6 

 

III. The BIC Exemption Would Adversely Impact Low- and 

Moderate-Income Americans and Small Businesses .............. 7 

 

IV. The Department Is Not the Appropriate Agency to Fashion a 

Best Interest Standard, Especially Using the Prohibited 

Transaction Provisions................................................... 11 

 

V. Proposed Rule Conflicts with Provisions of ERISA ............... 15 

VI. The Department Grossly Underestimates the Cost and Burden 

of Compliance ................................................................ 20 

VII. BIC Exemption Imposes Conditions Unnecessary to Protect 

Retirement Investors and Provides Remedies Beyond Those 

Authorized Under ERISA .............................................. 25 

 

a. Disclosure Requirement is Overbroad and Unnecessary ... 27 

 

b. Limited Definition of Available Assets ......................... 30 

 

c. BIC Exemption’s Standards for Impartial Conduct Are 

Unnecessary and Unclear ....................................... 33 

 

d. BIC Exemption Standards Related to Compensation Are 

Vague and Unclear ............................................... 34 

 

e. Limited Investment Alternative Compensation Conditions 

Are Unnecessary and Unclear .................................. 35 
ii 

Page

 

f. The Proposed Disclosure Mechanics Are Impractical ...... 36 

 

VIII. Inadequate Implementation Period ................................... 37 

IX. No Need to Revise Existing Exemptions .............................. 40 

X. Custodial Banks and Others that Provide Valuation 

Statements Perform Administrative—Not Fiduciary—

Functions ................................................................... 41 

 

XI. The Proposal Raises Significant Issues that Require the 

Department to Provide Additional Relief, Clarifications, and 

Interpretative Guidance ................................................ 42 

 

a. Definitions of “Recommendation” and “Investment 

Advice” ............................................................ 42 

 

b. The Department Also Should Provide an Express General 

“Carve-out” for Parties Who Are Just “Sellers” ............ 43 

 

c. The Department to Provide an Express “Carve-out” for 

Offering Services .................................................. 44 

 

d. Grandfathering ................................................... 45 

 

e. Proprietary Products ............................................. 45 

 

f. Networking Arrangements and Referrals ...................... 46 

 

g. Warranty Requirements in the BIC Exemption ............... 47 

 

h. Exculpatory Provisions .......................................... 47 

 

i. Impact on Institutional Retirement Services Businesses ..... 48 

 

j. Impact on Retirement Investors’ Personal Financial 

Privacy and Data Security ....................................... 49 

 
iii 

Page

k. We Ask the Department to Clarify that EmployerSponsored Welfare Benefits and Similar Arrangements, 

and Certain Distributions Directly into Insurance Products 

Are Not Subject to the Best Interest Contract Exemption ... 51 

 

 Exclusion for Employer-Sponsored Welfare 

Benefits .................................................... 51 

 

 Exclusion for Insurance Contract Sales ............... 52 

 

 Exclusion for Distributions Directly into Insurance 

Products ................................................... 52 

 

l. Call Center Personnel ............................................ 52 

 

XII. FSR’s Simple Investment Management Principles and 

Expectations Proposed Prohibited Transaction Class Exemption

(the “SIMPLE PTE”) .................................................... 53 

 

a. Background ................................................... 53 

 

b. The FSR SIMPLE PTE Codifies a Best Interest 

Standard ....................................................... 

55 

 

c. Best Interest Standard Does Not Preclude Receipt of 

Reasonable Compensation ................................. 56 

 

d. The FSR SIMPLE PTE Provides for Clear and Concise 

Disclosures of Compensation and Material Conflicts of 

Interest in “Plain English” ................................. 57 

 

e. The FSR SIMPLE PTE Requires Advisers, Brokers, 

and Institutions to Resolve Complaints and Inadvertent 

Violations Promptly .......................................... 58 

f. The FSR SIMPLE PTE Addresses Fully the 

Department’s Public Policy Objectives for Its 

“Investment-Advice Fiduciary” Rulemaking ............. 59 

 
iv 

 Page 

 

XIII. Conclusion ................................................................. 60 

Attachment: 

 

 APPENDIX B, “FSR’s Simple Investment Management Principles 

and Expectations Prohibited Transaction Class Exemption

................................................................................ 63 

 

 
1 

I. Introduction 

FSR welcomes the opportunity to comment on the United States Department of 

Labor’s (the “Department”) proposals regarding the (1) Definition of the Term 

“Fiduciary”; Conflict of Interest Rule—Retirement Investment Advice,1

 (2) Best Interest 

Contract Exemption (the “BIC Exemption”),2

 (3) Principal Transaction Exemption,3 and 

(4) related amendments to four existing prohibited transaction class exemptions4

(collectively, the “Proposal”). 

Consistent with FSR’s long-held support for harmonizing the regulatory régime 

applicable to securities broker-dealers and investment advisers when providing 

 1

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Definition of Term “Fiduciary”; 

Conflict of Interest Rule—Retirement Investment Advice [RIN: 1210-AB32], 80 Federal Register 

21928 (Apr. 20, 2015) (the “Re-Proposing Release”), available at http://www.gpo.gov/fdsys/pkg/FR2015-04-20/pdf/2015-08831.pdf. 

2

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Best Interest Contract 

Exemption, Application No. D-11712 [ZRIN: 1210-ZA25], 80 Federal Register 21960 (Apr. 20, 

2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08832.pdf. 

3

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs, Application No. D-11713 [ZRIN: 1210-ZA25], 80 Federal Register 

21989 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08833.pdf. 

4

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendment to Prohibited 

Transaction Exemption (PTE) 75-1, Part V, Exemptions from Prohibitions Respecting Certain 

Classes of Transactions Involving Employee Benefit Plans and Broker-Dealers; Prohibitions 

Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain BrokerDealers, Reporting Dealers and Banks, Application No. D-11687 [ZRIN: 1210-ZA25] 80 Federal 

Register 22004 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08836.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendment to and 

Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain 

Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies 

and Investment Company Principal Underwriters, Application No. D-11850 [ZRIN: 1210-ZA25], 80 

Federal Register 22010 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08837.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed 

Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 86-128 

for Securities Transactions Involving Employee Benefit Plans and Broker-Dealers; Proposed 

Amendment to and Proposed Partial Revocation of PTE 75-1, Exemptions From Prohibitions 

Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks, Application No. D-11327 [ZRIN: 1210-ZA25], 80 Federal 

Register 22021 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08838.pdf; and DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendments to 

Class Exemptions 75-1, 77-4, 80-83 and 83-1, Application No. D-11820 [ZRIN: 1210-ZA25], 80 

Federal Register 22035 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-

20/pdf/2015-08839.pdf. 
2 

personalized investment advice to consumers,5

 FSR supports a “best interest” standard 

that would be applicable to investment products and services provided to clients, 

administered in a coordinated manner by federal agencies and self-regulatory 

organizations that serve as front-line regulators of the financial services industry. 

While FSR and its members support a best-interest standard, the Proposal raises 

significant public policy and practical implementation concerns. These concerns include 

the likely adverse impact on individual choice regarding how to pay for retirement 

products and services and decreased access to financial services for low and moderateincome clients. 

FSR also is concerned the Proposal would eliminate conversations with departing 

employees, employees nearing retirement, and retirees. The Proposal restricts the ability 

of financial professionals to give specific investment recommendations to former 

employees and employees nearing retirement related to their benefits in an employersponsored retirement plan (usually a 401(k) plan or other thrift savings plan account). 

These employees would not receive meaningful guidance from financial professionals as 

a result. If financial professionals cannot provide meaningful guidance, then where are 

the former employees and employees nearing retirement supposed to get this 

information? Former employees and employees nearing retirement would be at risk of 

just “cashing-out” assets in employer-sponsored retirement plans. 6 Such lump sum 

distributions are subject to current income taxation and possibly substantial tax penalties. 

If they did not “cash-out,” employees nearing retirement might not fully understand the 

availability of products and services to help them best manage their retirement plan assets 

to last their lifetime. Most at risk in this regard are younger workers and members of 

minority communities.7 

 5

 See FINANCIAL SERVICES ROUNDTABLE, Study Regarding Obligations of Brokers, Dealers, and 

Investment Advisers pursuant to section 913 of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 [File No. 4-606] (Aug. 30, 2010), available at

http://www.sec.gov/comments/4-606/4606-2659.pdf (supporting “harmonization of the regulations for 

broker-dealers and investment advisers when providing personalized investment advice to retail 

customers); see also, FINANCIAL SERVICES ROUNDTABLE, Duties of Brokers, Dealers, and Investment 

Advisers, Securities Act Release No. 69013 [File No. 4-606] (July 5, 2013), available at 

http://www.sec.gov/comments/4-606/4606-3125.pdf. 

6

 See OLIVER WYMAN, The role of financial advisors in the US retirement market at 2 (July 10, 

2015) (“OLIVER WYMAN 2015”) (finding that “advised individuals aged 35-54 years making less than 

$100K per year had 51% more assets than similar non-advised investors”); LIMRA SECURE 

RETIREMENT INSTITUTE, Matters of Fact: Consumers, Advisors, and Retirement Decisions (and 

Results) at 10 (May 2015) (noting that “[f]inancial professionals/advisors are highly influential in 

helping individuals to make informed rollover decisions”). 

7

 See BIPARTISAN POLICY CENTER, “A Diversity of Risks: The Challenge of Retirement 

Preparedness in America” at 31 (Sept. 2014) (noting “cash-outs severely damage the retirement 

readiness of workers, especially those in the lower parts of the income distribution”); QUANTRIA 

STRATEGIES, LLC, “Access to Call Centers and Broker Dealers and Their Effects on Retirement 
3 

Given the need to ensure Americans increase savings,8

 and the demonstrable 

benefits Americans generally derive from working with financial professionals,9 these 

detrimental impacts deeply concern FSR members. 

 The Proposal would also impose substantial burdens on small businesses, and 

decrease the likelihood small businesses will adopt or continue retirement savings 

plans.10 For example, the Department’s proposed revisions to the “seller’s exemption” 

 Savings,” at 13 (Apr. 9, 2014) (“QUANTRIA Study”) (finding that “[cash-outs] are more likely to occur 

among individuals who (1) have a low account balance, (2) are under age 30, or (3) have lower wages. 

Higher cash-out rates are also an issue for African-Americans and Hispanics”). See, also FINRA, 

“Rollovers to Individual Retirement Accounts: FINRA Reminds Firms of Their Responsibilities 

Concerning IRA Rollovers” [Regulatory Notice 13-45] at 2 (Dec. 2013) (providing guidance on 

recommendations and marketing activities for IRA services, which “is intended to help firms ensure 

that they have policies and procedures in place that are reasonably designed to achieve compliance 

with FINRA rules”), available at 

http://www.finra.org/sites/default/files/NoticeDocument/p418695.pdf. 

8

 See, OXFORD ECONOMICS, Another Penny Saved: The Economic Benefits of Higher US Household 

Saving at vi (June 2014), available at http://www.oxfordeconomics.com/anotherpennysaved (noting 

that an increase in the nation’s saving rate over the next 25 years “would add a discounted $7 trillion 

to America’s economy, equal to about half of today’s GDP;” a result that would “generate greater 

[U.S.] household wealth, [and] better insulate the [U.S.] economy from international capital shocks). 

9

 See, e.g., LIMRA SECURE RETIREMENT INSTITUTE, Matters of Fact: Consumers, Advisors, and 

Retirement Decisions (and Results) at 3 (May 2015) (noting that “Households that use financial 

advisors are three times as likely as non-advised households to have $250,000 or more in retirement 

savings ... and are more than twice as likely to have $100,000 or more”); FRANCIS M. KINNIRY JR.,

COLLEEN M. JACONETTI, MICHAEL A. DIJOSEPH, AND YAN ZILBERING, Putting a value on your value: 

Quantifying Vanguard Advisor’s Alpha, The Vanguard Group at 16 (2014), available at

http://www.vanguard.com/pdf/ISGQVAA.pdf (finding that based on “actual client behavior, . . . 

investors who deviated from their initial retirement fund investment trailed the target-date fund 

benchmark by 150 [basis points]. This suggests that the discipline and guidance that an advisor might 

provide through behavioral coaching could be the largest potential value-add of the tools available to 

advisors. In addition, Vanguard research and other academic studies have concluded that behavioral 

coaching can add 1% to 2% in net return.”). 

10 BRADFORD P. CAMPBELL, “Locked Out of Retirement: The Threat to Small Business Retirement 

Savings” at 4 (2015) (noting that “small business SEP IRA and SIMPLE IRA arrangements that 

currently depend on these advisors for affordable assistance are likely to disproportionately bear the 

costs of excessive regulation—their small scale means they are more expensive to serve”), available 

at https://www.uschamber.com/sites/default/files/us_chamber_-_locked_out_of_retirement.pdf; 

GREENWALD & ASSOCIATES, “The Impact of the Upcoming Re-Proposed Department of Labor 

Fiduciary Regulation on Small Business Retirement Plan Coverage and Benefits” at 3 (May 14, 2014) 

(finding that: (a) about 30% of small businesses would likely drop retirement plans for their 

employees; (b) almost 50% would change their plans to reduce the matching contribution, offer fewer 

investment options, and increase fees for participants; (c) the rule would deter almost 50% of small 

businesses that have not established a plan from offering one; and (d) any new plans would likely 

impose higher fees on participants but not offer matching contributions for almost 40% of small 

businesses). 
4 

would apply only to large plans with at least 100 employees.11 As a consequence, 

financial professionals would be unable to provide meaningful assistance to small 

business owners. Financial professionals provide information and guidance regarding 

how small businesses can establish a retirement plan and the “menu of investments” 

available for such a plan. Without adequate guidance to help them navigate the complex 

process of identifying an appropriate menu of investments from thousands of potential 

choices, small business owners may “give up” and offer no plan.12

II. Implementation of the Department’s Proposal Would Adversely 

Impact Access to Affordable Advice from Preferred Financial 

Professionals

a. FSR’s Concerns and Objections 

FSR’s comments and objections to the Proposal are summarized below. 

(i) If implemented as proposed, the Proposal and the BIC Exemption will 

adversely affect the very Retirement Investors13 the Department seeks to protect because 

the Proposal will adversely impact the ability of financial professionals and financial 

services institutions to provide services to the full range of workers, including lower and 

moderate-income individuals. As we note in Section III, data indicates the efforts of 

financial professionals and financial services institutions are crucial to encouraging 

individuals to plan and save for retirement.14 As more fully discussed in Section VII, the 

Proposal and the BIC Exemption will impose burdens and restrictions on financial 

professionals and their firms that will undermine their ability to provide cost-effective 

investment assistance to many Retirement Investors. 

 11 See, OLIVER WYMAN 2015 supra note 6 at 1 (noting that “over 19 million people who work for 

businesses with fewer than 50 employees do not currently have access to a workplace retirement 

plan”). 

12 See, Greenwald & Associates supra note 10. 

13 Retirement Investor means: (1) a participant or beneficiary of a plan subject to Title I of Employee 

Retirement Income Security Act (“ERISA”) with authority to direct the investment of assets in his 

plan account or to take a distribution; (2) the beneficial owner of an individual retirement account 

(“IRA”) acting on behalf of the IRA; or (3) a plan sponsor as described in ERISA section 3(16)(B) (or 

any employee, officer, or director thereof) of a plan subject to Title I of ERISA to the extent it acts as 

a fiduciary for the plan. This definition excludes non-retirement accounts in section 408; however, if 

the Department ultimately decides to include these non-retirement accounts, the definition of 

“Retirement Investor” also would include the owners of those accounts. 

14 See, OLIVER WYMAN 2015 supra note 6 at 2 (finding that “advised individuals aged 35-54 years 

making less than $100K per year had 51% more assets than similar non-advised investors”); LIMRA

SECURE RETIREMENT INSTITUTE, Matters of Fact: Consumers, Advisors, and Retirement Decisions 

(and Results) at 10 (May 2015) (noting that “[f]inancial professionals/advisors are highly influential 

in helping individuals to make informed rollover decisions”). 
5 

(ii) A best interest standard that protects Retirement Investors and other clients 

from abusive tactics or recommendations that are not in their best interests should be 

implemented by Congress so broad policy considerations can be appropriately and openly 

debated, and various federal laws implicated can be addressed in a comprehensive and 

coordinated fashion. 

If a best interest standard is implemented through regulatory action, it should be 

applied consistently for all individuals, not just retirement savers. Such a standard should 

be developed and applied through the authority of federal capital markets regulators and 

Congressionally mandated industry self-regulatory organizations (e.g., the Commission, 

the Commodity Futures Trading Commission, and FINRA) as well as state banking, 

insurance, and securities authorities. As discussed in Section IV, capital markets 

regulators are charged with responsibility for the administration of federal securities and 

commodities laws and regulation of securities and commodities registered professionals 

and firms. State officials also have an important regulatory role with respect to the 

offering of products and services within their respective jurisdictions and the licensing of 

individuals and firms that conduct business within their jurisdictions. 

(iii) FSR questions whether forty years after the enactment of ERISA15 (which 

Congress has amended frequently), the Department should revise the interpretation of a 

fundamental fiduciary concept under the statute. Congress and the courts have relied on 

prior interpretations of the statute, which were adopted substantially contemporaneously 

with the enactment of the statute. Extending fiduciary standards to “rollover” and IRA 

distribution advice this many years after the plans were introduced also raises questions 

about what was settled law. FSR also believes the Proposal conflicts with ERISA by 

requiring IRA service providers to agree to be bound by fiduciary responsibility 

provisions Congress did not apply to such persons, and by creating liability for such 

persons beyond Section 404(c) of ERISA. See Section V. 

(iv) The BIC Exemption imposes unnecessary burdens, costs and restrictions on 

financial professionals and institutions that are not required to better protect Retirement 

Investors. FSR believes significant revisions are required to make the Proposal work 

effectively and efficiently to protect Retirement Investors, and provide them affordable 

access to the services from their preferred financial professional and institution. See

Section VII. 

(v) The Department’s estimates of compliance the costs and burdens (e.g., legal 

and technology and systems) with the Proposal are grossly understated. See Section VI. 

(vi) The proposed transition period for implementation of the BIC Exemption is 

inadequate. The costs and burdens associated with the massive undertakings required to 

 15 Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, 88 STAT. 829 (Sept. 2, 

1974) [codified at 29 U.S.C. § 1001 et seq.]. 
6 

develop, test, and implement systems and programs to comply with the BIC Exemption 

are substantial and will require more time. FSR members estimate that a transition period 

of 36 months would be necessary to implement the Proposal and the BIC Exemption. See

Section VIII. 

(vii) The Proposal raises concerns which require clarification or relief, including: 

(a) “grandfathering” existing customer relationships; (b) an express exclusion for all 

employer-sponsored welfare benefit plans (i.e., health insurance, long-term care 

insurance, disability insurance, etc.); (c) express approval for financial services firms to 

recommend and sell proprietary as well as limited-range products and services; and (d) 

elimination of certain mass data gathering requirements that could adversely implicate 

personal financial privacy and data security.16 See Section XI. 

(xiii) The Proposal presents impediments for institutional retirement services 

businesses which generally do not provide investment advice to Plan participants or other 

Retirement Investors. The breadth of the Proposal would implicate such ordinary course 

activities and the extremely complex conditions of the BIC Exemption could be triggered 

as a result. See Section XI(i). 

(ix) If the Department adopts the Proposal, FSR presents guidance on how the 

Department can address the significant deficiencies in the Proposal. See Section VII. 

b. FSR’s Simple Investment Management Principles and Expectations 

(SIMPLE PTE) 

In keeping with FSR’s long-standing support for a best interest standard, FSR 

proposes the Simple Investment Management Principles and Expectations prohibited 

transaction class exemption under ERISA (the “SIMPLE PTE”) for the Department’s 

consideration. The SIMPLE PTE would maintain access to professional financial advice 

and help savers address their unique financial needs in retirement, and make those 

savings last a lifetime.17 The SIMPLE PTE would meet the needs of Americans 

preparing for retirement without the burdens imposed by the Department’s Proposal. The 

SIMPLE PTE also would preserve Americans’ flexibility to work with their preferred 

adviser, and to pay for retirement products and services in the manner of their choosing. 

See Section XII. 

 16 See, Devlin Barrett, Danny Yadron, and Damian Paletta, U.S. Suspects Hackers in China 

Breached About 4 Million People’s Records, Officials Say, WALL ST. J., (June 5, 2015) (reporting on 

the alleged theft of personnel records “in one of the most far-reaching breaches of government 

computers”), available at http://www.wsj.com/articles/u-s-suspects-hackers-in-china-behindgovernment-data-breach-sources-say-1433451888?KEYWORDS=office+of+personnel+management. 

17 See, APPENDIX B, FSR’s Simple Investment Management Principles and Expectations Prohibited 

Transaction Class Exemption. 
7 

III. The BIC Exemption Would Adversely Impact Low- and ModerateIncome Americans and Small Businesses 

The BIC Exemption is intended to assure that: 

(1) recommendations Retirement Investors receive are not motivated 

by improper influences; 

(2) compensation Retirement Investors pay for advice is reasonable in 

relation to the services provided; 

(3) institutions servicing investors have taken actions to avoid 

conflicts of interest that may adversely influence their advice; and 

(4) Retirement Investors are provided detailed disclosures regarding 

fees and expenses so investors can make sound judgments. 

The BIC Exemption also creates an avenue for investors, instead of the Department or the 

Internal Revenue Service, to enforce compliance with the above-described commitments 

and obligations, as well as any other laws. 

While these are laudable objectives, the BIC Exemption will fail to achieve its 

intended objectives. Institutions design products to serve the needs of clients and to 

make a reasonable and appropriate profit. So investment products and services are 

necessarily offered with both the interest of the client and the profit interest in mind.18 

 18 Notably, the medical profession also has to contend with policy issues implicated by potential 

conflicts of interest. For example, Dr. Lisa Rosenbaum recently recommended “a more rational 

approach to managing conflicts and ‘to shift the conversation away from one driven by indignation 

toward one that better accounts for the diversity of interactions, the attendant trade-offs, and our 

dependence on industry in advancing patient care.’” See Joseph Rago, A Cure for “Conflict of 

Interest” Mania: A crusading physician says medical progress is hampered by a holier-than-thou 

‘moralistic bullying,’ WALL ST. J. (June 26, 2015), available at

http://www.wsj.com/articles/SB11760718815427544683404581068401388235760. 

Rago profiles noted cardiologist Dr. Tom Stossel, who observed that “private industry is the engine of 

innovation, with productivity and new advances dependent on relationships between commercial 

interests and academic and research medicine. Companies, not universities or research with federal 

funding, run 85% of the medical-products pipeline. ‘We all inevitably have conflicts all the time. You 

only stop having conflicts when you’re dead. The only conflict-free situation is the grave,’ he says.” 

Id. 

 The pursuit of the illusion “to be pure, to be priestly, to be supposedly uncorrupted by the 

profit motive,” Dr. Stossel says, often has the effect of banishing or else discounting the 

expertise of the people who know the most but whose integrity and objectivity are allegedly 

compromised by industry ties. What ought to matter more, he adds, is simply “Results. 

Competence.” Id. 
8 

Yet, the BIC Exemption requires that the Financial Professional or Institution can only 

make a recommendation if it has no interest in respect to the recommendation. In a freemarket economy, those who develop superior products with superior benefits and results 

for clients should be rewarded. 

Through the BIC Exemption, the Proposal attempts to limit compensation an 

institution receives to the “value” of the services provided. In connection with servicing 

the accounts of Retirement Investors, however, what exactly are the services being 

provided? The BIC Exemption intimates such services are simply investment 

recommendations. Such recommendations are not made in isolation. 

In the highly regulated arenas in which financial services institutions operate, 

services provided to clients must also account for the time, effort, and expenses incurred 

in developing products, recordkeeping, administration, legal compliance, and more. 

Without these costs, no products or services could be recommended to Retirement 

Investors. 

Products, no matter how beneficial to a client, also do not usually sell themselves. 

The benefits of products must be brought to the attention of the client, especially in a 

highly competitive market. Individuals and firms understand the need to be fairly 

compensated for their effective sales and marketing efforts. Yet, the BIC Exemption 

prohibits use of commonplace and effective systems of compensation that reward 

performance through differentiated compensation. 

While limiting compensation, the BIC Exemption requires the accumulation, 

distillation and dissemination of elaborate amounts of data and information about the 

products that must be shared and discussed with the client. If Retirement Investors were 

held responsible for decisions based on this extensive data, mandating disclosure of such 

 See, also Chairman Phil Roe, U.S. Dept. of Labor, U.S. HOUSE COMM. ON EDUC. AND THE 

WORKFORCE, SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS (June 17, 2015) 

(criticized the “flawed” comparisons of the Department’s Proposal to standards applicable to 

physicians). 

As a physician with more than 30 years of experience in treating patients, let me just say 

that the approach reflected in this proposal would destroy what’s left of our health care 

system. Imagine what would happen if doctors were prohibited from receiving 

compensation or were required to sign a contract with each patient before delivering 

services or were forced to publish online each and every treatment that had been 

prescribed the following year. No doctor could run a successful practice under this type of 

regulatory regime and no reasonable financial adviser will be able to, either. Make no 

mistake, if this rule goes into effect, a lot of people will quickly learn that their financial 

adviser, someone they have known and trusted for years, will no longer be able to take 

their call. And, it’s important to note that low and middle-income families are the ones 

who will bear the brunt of this misguided proposal. They will lose access to their personal 

service that they’ve relied on and be forced to find suitable advice online or simply fend 

for themselves.
9 

data would make much more sense. However, under the BIC Exemption, persons 

offering products and services are liable for improper offerings and decisions. 

Given the elaborate systems that will be required to service accounts, related 

compliance costs and efforts, unknown liability exposure created by the Proposal (both in 

terms of potential liabilities and taxes under ERISA and the Internal Revenue Code of 

1986 (the “Code”)19), and the enforcement of contractual rights under the BIC 

Exemption, the cost of servicing retirement accounts will increase dramatically. 

Financial institutions currently servicing Retirement Investors’ needs for guidance are 

likely to find that these costs will prevent profitably servicing both small and modest 

accounts as well as small businesses. Thus, the BIC Exemption will likely have the 

effect of denying such Retirement Investors access to needed assistance. 

As a result of the experience of the past several years, all institutions have 

undertaken programs to make sure that each institution properly assesses the risks and 

exposures of each line of business in which it engages that offers products or services to 

Retirement Investors. The risks and expenses imposed on financial professionals and 

financial institutions that seek to comply with the vague and extensive requirements of 

the Proposal will likely prove to be prohibitive in light of the amount of compensation 

that financial professionals or financial institutions could reasonably expect to receive 

from providing services to individual accounts of limited size and businesses that have 

modest resources to devote to providing retirement programs. Thus, it is reasonable to 

conclude that many financial professionals and financial institutions will either exit this 

market,20 or agree to provide services only to accounts that have a fairly significant 

amount of assets. 

The adverse effect of limiting the access of small investors to such advice and 

guidance on retirement savings is likely to be devastating. The Federal Reserve has 

reported that “many respondents are not saving for retirement, lack confidence in their 

ability to invest their retirement savings, or appear ill-informed about their retirement 

 19 26 U.S.C. §1 et seq. 

20 A study commissioned by the Financial Conduct Authority following the implementation of a 

comparable initiative in the United Kingdom explains that during the period following proposal of the 

initiative “there was some exit from the advisory market, particularly in the period leading up to the 

[effectiveness of the initiative] by banks and by some financial advisers.” EUROPE ECONOMICS, 

RETAIL DISTRIBUTION REVIEW POST IMPLEMENTATION REVIEW 84 (2014), available at

http://www.fca.org.uk/static/documents/research/rdr-post-implementation-review-europeeconomics.pdf. This report attempts to diminish any correlation between the Retail Distribution 

Review and the exit of advisers from the industry, claiming that the decision of advisers to exit the 

marketplace was “strategic” due to “declining profitability and regulatory failings” and that the effect 

of the initiative on such decisions was likely “partial and indirect at most.” 
10 

accounts.” 21 Almost forty percent (40%) of respondents to the Federal Reserve’s survey 

indicated that they had given either “no” or “very little” thought to financial planning for 

retirement. Slightly more than half of the respondents with self-directed accounts 

indicated they were “either ‘not confident’ or only ‘slightly confident’ in their ability to 

make the right investment decisions when investing money in these accounts.”22 

Securities brokers can help investors save more, better customize their portfolios 

to individual risk tolerance, increase overall investor comfort with investment decisions, 

and improve financial literacy.23 Many retail investors seek help from financial 

professionals because they are “uncomfortable tackling retirement savings on their 

own.”24 This preference stems from retail investors’ lack of investment knowledge and 

the anxiety of entering financial markets unaided.25 Accordingly, actions that would limit 

access to qualified financial professionals would be contrary to the substantial needs 

indicated in the Federal Reserve Report to promote retirement savings. 

It may be that the true intent of the Proposal is to migrate Retirement Investor 

accounts to an advisory account model in which the institution is compensated via a fee 

based upon assets under management, rather than on a commission-based model. 

Perhaps the Department has looked to the experience of defined benefit plan investments 

that have been managed efficiently and effectively on this basis, in compliance with the 

duties and responsibilities under ERISA for many years, and assumed that such a model 

can be applied to small individual accounts. However, such a view likely does not take 

into consideration practical and regulatory reasons that would likely restrict access to a 

fee-based model for smaller-balance retirement accounts, and accounts owned by 

individuals that have a “buy-and-hold” investment strategy. 

Institutions serving defined benefit accounts have clients that are generally 

investing large sums under the management of the firm. With larger amounts invested, a 

fee structure can fairly compensate the institution for efforts required to properly invest 

such assets, as well as the substantial compliance and administrative costs associated with 

complying with ERISA and the Code with respect to fee-based accounts. 

 21 FEDERAL RESERVE BOARD, Report on the Economic Well-Being of U.S. Households in 2014, May 

2015, at 37.

22 Id. at 38.

23 See Daniel Bergstresser et al., Assessing the Costs and Benefits of Brokers in the Mutual Fund 

Industry (October 2009), 22 REV. FIN. STUD. (ISSUE 10) 4129 (2009), available at

http://ssrn.com/abstract=1479110; Nicola Gennaioli et al., Money Doctors (Nat’l Bureau of Econ. 

Research, Working Paper No. w18174, 2012), available at http://ssrn.com/abstract=2089246. 

24 See OLIVER WYMAN 2015 supra note 6 at 1 (July 10, 2015) (observing that “58% of households 

with under $100,000 in investable assets, and 75% of households with over $100,000 in investable 

assets solicit professional financial advice”). 

25 See Gennaioli et al., supra note 23. 
11 

With regard to a small, individual account owner, financial institutions will have 

many of the same legal obligations and compliance expenses. The effort involved in 

making sure advice is properly tailored to meet the suitability requirements under 

applicable laws (e.g., securities and insurance laws) prevents managers from simply 

comingling assets under management and treating accounts as though they were investing 

like a large defined benefit plan representing retirement assets of a number of individuals. 

Thus, the alternative model the Department appears to favor will likely not translate 

efficiently and effectively to the marketplace for small Retirement Investors. Such 

Retirement Investors could be left without access to valuable and essential assistance if 

the Proposal is implemented. 

The Proposal also fails to take into consideration the fact that a fee-based account 

is not suitable for all Retirement Investors. For example, a fee-based account is not 

suitable for those Retirement Investors who engage in relatively few securities 

transactions a year (a “buy-and-hold” investor), or where the retirement account is small. 

The Department’s preferred approach also fails to acknowledge the Commission has 

made suitability for fee-based accounts (known as “reverse-churning”) an exam 

priority.26 Financial professionals and institutions are highly unlikely to move all 

Retirement Investors into fee-based accounts when doing so could give rise to adverse 

consequences noted above. 

IV. The Department Is Not the Appropriate Agency to Fashion a Best 

Interest Standard, Especially Using the Prohibited Transaction 

Provisions 

The Department’s Proposal is designed to change the manner in which retirement 

accounts are managed through the provisions of the prohibited transaction provisions of 

ERISA and the Code. The Code imposes an excise tax of 15 percent (15%) of the 

“amount involved” in the prohibited transaction for the taxable year in which such 

prohibited transaction occurs, and for each subsequent taxable year in which such 

transaction continues uncorrected. If the transaction is not corrected by the time the IRS 

assesses the basic prohibited transaction excise taxes, the rate of tax increases to 100 

percent (100%). Additional penalties and liabilities may be imposed under ERISA, to the 

extent applicable. 

The Proposal uses the prohibited transaction provisions because they are the only 

tool available to the Department to effectuate a best interest standard applicable to IRAs, 

since Congress chose not to apply ERISA’s fiduciary responsibility provisions to IRAs. 

The Department is only able to impact IRAs by expanding the scope of who is deemed an 

 26 SEC. & EXCH. COMM’N, OFFICE OF COMPLIANCE INSPECTIONS AND EXAMINATIONS (“OCIE”), 

Examination Priorities for 2015 at 2 (Jan. 13, 2015), available at

http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2015.pdf. 
12 

investment-advice fiduciary, so that their activities fall within the purview of the 

prohibited transaction provisions. However, these provisions were designed to limit 

conduct Congress determined to be inappropriate, not as a tool for the Department to 

dictate the conduct it deems appropriate. 

By resorting to this imprecise tool, the Proposal prohibits the provision of 

“investment advice” (as defined under the Proposal) on a commission-based model— 

notwithstanding the Department simultaneously proposing a limited exception to the 

complete prohibition that it has otherwise created. By completely reversing its 40-yearold interpretation of a statutory provision of ERISA, the Proposal creates an unworkable 

structure that imposes potentially draconian penalties on financial professionals and 

institutions that fail to meet the conditions that the Department has imposed. 

The régime created by the Proposal will cause remarkable confusion, expense and 

complexity for everyone, including savers, financial professionals, and institutions. If 

issues and concerns need to be addressed through the introduction of a best interest 

standard, such a standard should apply equally to all accounts, not just to accounts that 

through some contortion the Department can regulate. FSR supports a best interest 

standard for all investors. 

The Proposal will require financial professionals and institutions to operate under 

a substantially different régime with regard to contracts, disclosure, and compliance for 

different kinds of accounts. IRA investors often also invest non-retirement account assets 

with the same financial professionals and the same institutions (reflecting their 

confidence in those persons and entities). The Proposal would have the effect of 

requiring two distinct and non-complementary sets of complex rules and regulations 

applying to accounts that are beneficially the assets of the same individual. Financial 

professionals deal with people, not just accounts. 

Implementation of the Proposal will confuse clients and disrupt relationships with 

financial professionals and institutions with regard to both accounts. It will be difficult 

for the average client to comprehend how the Department, which is charged with 

overseeing ERISA, has mandated complex changes in the manner in which financial 

services professionals engage with the client’s IRA account, which is not subject to 

ERISA. As a consequence, the client’s IRA and non-retirement accounts will not be 

managed in a similar fashion—or considered holistically—even if that is the client’s 

preference. Imagine a financial professional having to explain that an asset 

recommended for a non-retirement account (or held in the IRA prior to the 

implementation date of the Proposal) cannot be added to the IRA because the Department 

does not allow that asset to be purchased pursuant to the BIC Exemption.27 

 27 See DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and 
13 

Again, a standard of conduct that protects the best interests of clients is a laudable 

goal. Changes to certain industry practices may be required to accommodate a best 

interest standard, and changes to certain laws and to the conduct that is allowed or 

required today under applicable federal or state laws may be necessary to properly align 

the conduct that is deemed desirable under a best interest standard. 

The task of creating such a standard is best addressed through an open and 

transparent legislative process, where Congress can express its perspectives as part of the 

public record, and explain the rationale for its proposal. Ancillary questions of 

significant importance should be properly considered and debated, such as whether the 

Department’s Proposal constitutes a federal intrusion into the regulation of insurance, an 

area that has long been subject to comprehensive regulation solely by the states. 

The Department supports its position by asserting that substantial changes have 

occurred since the enactment of ERISA in the manner in which retirement assets are 

invested, and such changes have resulted in an explosion of individual account plans and 

increased use of IRAs. The Department’s analysis overlooks the fact that Congress 

created and facilitated this sea change by legislation and has been aware of these changes, 

as it has regularly amended ERISA over the 40 years following its enactment. FSR 

believes that, if a radical shift in the currents is required to address this sea change, such a 

shift is a task that should be left to Congress. 

Further, if the change in current practices should be addressed through regulatory 

action, the Commission should lead that charge, in collaboration with FINRA. We 

understand the Department consulted with the Commission in developing its Proposal,28

and that the Commission has confirmed that it provided technical assistance. However, it 

is not clear the Commission staff believed the Proposal should be implemented or 

whether the Commission or its staff raised concerns or objections that have not been 

addressed by the Proposal, or otherwise opposed or criticized the Proposal.29 

 Employee Benefit Plans and IRAs, Application No. D-11713 [ZRIN: 1210-ZA25], 80 Federal Register 

21994 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-

08833.pdf. 

28 See, Testimony of Secretary Thomas E. Perez, U.S. Dept. of Labor, U.S. HOUSE COMM. ON EDUC.

AND THE WORKFORCE, SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS (June 17, 

2015) (testifying that “[this] proposed rule is a product of lengthy, exhaustive outreach. It includes 

extensive consultation with the SEC, whose expertise has been invaluable as we’ve developed this 

rule. Our outreach to the SEC was not box-checking exercise, it was critical to the rulemaking and it 

has helped us make a better proposal.”). 

29 See also, Richard G. Ketchum, Remarks from the 2015 FINRA Annual Conference (May 27, 2015) 

(noting his belief that while a “properly designed best interests standard is a must . . . the current 

Labor proposal is not the appropriate way to meet that goal”), available at

http://www.finra.org/newsroom/speeches/052715-remarks-2015-finra-annual-conference. 
14 

Since the 1930s, the Commission and FINRA have exercised oversight over U.S. 

capital markets and securities professionals and firms. Both regulators continue to focus 

on investment products and services for the retirement market, including initiatives 

intended to protect individuals saving for retirement. For example, during the 2015 

examination cycle, the Commission’s staff focus includes the nature of fee arrangements 

(e.g., fees based on assets under management, hourly fees, performance-based fees, wrap 

fees, etc.); sales practices related to certain transactions like rollovers (especially when 

they pose greater risks and/or charge higher fees); the suitability of recommendations “to 

invest retirement assets into complex or structured products and higher yield securities;” 

and a continuing assessment of alternative investment funds and strategies, including the 

leverage, liquidity, valuation, internal controls, and marketing activities of such funds.30 

More recently, the Commission announced the Retirement-Targeted Industry 

Reviews and Examination Initiative, which will focus examination resources on certain 

registered investment advisers and broker-dealers that provide retirement products or 

services to retail investors. These examinations will focus on whether a reasonable basis 

exists for the recommendations made to Retirement Investors; conflicts of interest; 

supervision and compliance controls, and marketing and disclosure.31 

Investors and the financial services industry would benefit materially from 

allowing the Commission, through its Office of Compliance Inspections and 

Examinations, to conduct these focused examinations and the nature and extent of any 

improper conduct that may have occurred. The Commission could then develop a best 

interest standard that will protect both Retirement Investors and retail investors more 

generally. Such a process would be based upon actual data from investigations, rather 

than anecdotes, academic research, and assumptions. 

As described above, the Proposal would have a significant and adverse effect on 

the role financial professionals and institutions play in providing assistance to retirement 

savers. Compliance burdens would increase materially, as institutions would need to 

develop and operate two distinct régimes for dealing with retail accounts. They would 

 30 See SEC. & EXCH. COMM’N, OFFICE OF COMPLIANCE INSPECTIONS AND EXAMINATIONS, National 

Exam Program, Examination Priorities for 2015 at 2-3 (Jan. 13, 2015), available at 

http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2015.pdf. See also,

FINRA, 2015 Regulatory and Examination Priorities Letter at 2-3 (Jan. 6, 2015) (discussing 

“recurring challenges,” including putting customer interests first; firm culture; supervision, risk 

management, and controls; creating a proper environment for a good firm culture, strong supervisory 

and risk management systems, product and service offerings; and conflicts of interest), available at

http://www.finra.org/sites/default/files/p602239.pdf. 

31 SEC. & EXCH. COMM’N, OFFICE OF COMPLIANCE INSPECTIONS AND EXAMINATIONS, National 

Exam Program Risk Alert, Retirement-Targeted Industry Reviews and Examinations Initiative, vol. 

IV, issue 6 (June 22, 2015), available at http://www.sec.gov/about/offices/ocie/retirement-targetedindustry-reviews-and-examinations-initiative.pdf. 
15 

also need to educate and monitor advisers to properly bifurcate these different régimes 

for different accounts, even though the same individual owns both accounts. 

The Department may believe institutions can readily apply the conditions of the 

BIC Exemption to all investors, not just Retirement Investors. To comply with the BIC 

Exemption, an institution will need to undertake significant changes in business 

operations. In the case of IRA owners, the financial institution will be agreeing to: (1) 

contractually apply a standard of conduct that is not imposed by statute; (2) provide a 

private cause of action for every state and federal law to which it is subject; and (3) open 

up certain business practices (e.g., adviser compensation practices) to scrutiny and 

challenge by individual investors and their attorneys. 

While some institutions may reluctantly accept the substantial risks and burdens 

in order to continue to service Retirement Investors under the Proposal, none can be 

expected to voluntarily undertake the same burdens where it is not required to (i.e., the 

non-retirement market). Accordingly, the Proposal will result in a dual system that will 

add cost and complexity for all investors. Such a result would be unnecessary if the 

Department and the Commission worked together to develop a coordinated and 

integrated best interest standard that would protect investors in a reasonable, practical, 

and efficient manner. 

V. Proposed Rule Conflicts with Provisions of ERISA 

The Proposal exceeds the Department’s authority to promulgate interpretative 

regulations and is inconsistent with the statutory provisions it purports to interpret. The 

proposed broad re-definition of “investment advice” will subject virtually every service 

provider involved in providing investment-related education, products, or services 

(including those involved in investing assets at the direction of an IRA owner or plan 

participant) to draconian penalties under the excise tax provisions of Section 4975 of the 

Code. The Department proposes to offer relief from these prohibited transaction 

provisions in the form of the BIC Exemption which, among other material conditions, 

requires any person who purports to rely on its terms to agree to be bound to the 

substantive fiduciary responsibility provisions of ERISA. In combination, the Proposal 

and the terms of the proposed BIC Exemption would make financial professionals and 

institutions that provide advice and guidance to IRAs subject to the fiduciary 

responsibility provisions of ERISA. 

Congress limited ERISA’s scope to “employee benefit plans” maintained by an 

employer, and Congress expressly decided not to make IRAs subject to ERISA when it 

enacted ERISA in 1974. Instead, Congress subjected IRAs to the corresponding 

prohibited transaction provisions of the Code, as set forth in Title II of ERISA. Thus, the 

Department’s proposed expanded definition of investment advice and the BIC Exemption 

requirement would collectively replace Congress’s judgment. The Department is 

essentially attempting to amend ERISA to encompass IRAs without Congressional 
16 

action. Amending ERISA requires an act of Congress, not an informal rulemaking under 

the Administrative Procedure Act.32 

The Department seeks to justify its expansion of ERISA by dismissing the 

Department’s original definition of an investment-advice fiduciary—promulgated 

approximately 40 years ago—which interpreted “investment advice” as a rule that 

unintentionally narrowed the breadth of the statutory provision. In the accompanying 

explanation of the need to revise the definition of an investment-advice fiduciary, the 

Department stated: 

In 1975, the Department issued regulations that significantly narrowed the 

breadth of the statutory definition of fiduciary investment advice by 

creating a five-part test that must, in each instance, be satisfied before a 

person can be treated as a fiduciary adviser. This regulatory definition 

applies to both ERISA and the Code. The Department created the test in a 

very different context, prior to the existence of participant-directed 401(k) 

plans, widespread investments in IRAs, and the now commonplace 

rollover of plan assets from fiduciary-protected plans to IRAs.33

The Department further stated that: 

With this regulatory action, the Department proposes to replace the 1975 

regulations with a definition of fiduciary investment advice that better 

reflects the broad scope of the statutory text and its purposes and better 

protects plans, participants, beneficiaries, and IRA owners from conflicts 

of interest, imprudence, and disloyalty.34

 However, the Department’s original explanation, as well as ERISA and the 

Code, provide otherwise. In proposing its current definition of an investment-advice 

fiduciary shortly after the enactment of ERISA, the Department stated: 

The proposed regulation is designed to clarify the applicability of the 

definition of the term “fiduciary” set forth in Section 3(21)(A) to persons 

who render investment advice to employee benefit plans and to persons 

who execute securities transactions on behalf of such plans.35

 32 Administrative Procedure Act, 5 U.S.C. § 553 (2015). 

33 Proposing Release, 80 Federal Register at 21928. 

34 Id. at 21929. 

35 Definitions and Coverage Under the Employee Retirement Income Security Act of 1974, 40 

Federal Register 33561, at 33562 (August 8, 1975). 
17 

And, in the explanation accompanying the final regulation, the Department stated: 

In response to several written comments, paragraph (c)(1) has been 

modified to make it clear that for a person to be a fiduciary under 

paragraph (c)(1) (ii)(B) any such agreement, arrangement or 

understanding to provide such [investment] advice must be mutually 

agreed upon, arranged or understood by the person providing such advice 

and the plan or the fiduciary.36

It was also noted in the letters of comment that advice on the availability 

of securities or other property or of purchasers or sellers of securities or 

other property is often merely an integral part of the execution of 

transactions rather than the provision of investment advice.37 

It is apparent that when the current regulations were adopted, the Department’s intent was 

to “clarify the applicability” of the statutory provision—not narrow its application—and 

the Department clearly adopted the conditions contained in the current rule in response to 

comments seeking further clarification of that statutory provision. Thus, the 

Department’s current position is diametrically opposed to the positions the Department 

expressed when it promulgated the current regulations. 

Moreover, the Department now states the revised definition “better reflects the 

broad scope of the statutory text” because the original rule was promulgated “prior to the 

existence of participant-directed 401(k) plans, widespread investments in IRAs, and the 

now commonplace rollover of plan assets from fiduciary-protected plans to IRAs.”38 

This statement ignores the fact Congress established, as part of ERISA, the very rules that 

permitted and authorized the growth of participant-directed accounts and investment by 

individuals in IRAs. The Department claims that the need to revamp the definition of 

investment advice arises because of subsequent developments ignores Congressional 

intent and action. Congress affirmatively permitted rollovers from employee benefit 

plans to IRAs, and chose not to subject IRAs to the broad protections that it enacted 

under ERISA. 

 

 36 Definition of the Term “Fiduciary,” 40 Federal Register 50842 (October 31, 1975). 

37 Id.

38 Proposing Release, I. Executive Summary, 80 Federal Register at 21928. 
18 

Perhaps more importantly, Section 404(c) affirmatively states that, to the extent 

that a participant directed the investment in his own account under an employee benefit 

plan: 

“no person who is otherwise a fiduciary shall be liable under this part for 

any loss, or by reason of any breach, which results from such participant’s 

or beneficiary’s exercise of control ....”39

This clearly demonstrates Congress did not intend the ERISA fiduciary responsibility to 

apply when an individual has control over his investments in a participant-directed 

account. No similar provision in the Code applies to IRAs, presumably because 

Congress viewed IRAs as the ultimate participant-directed account. 

In an employee benefit plan, a participant and beneficiary may control 

investments made on her behalf only to the extent the plan sponsor affords investment 

discretion to the participant or beneficiary. 

By contrast, an IRA owner has full control and power to determine the 

investment. The IRA owner enters into a custody agreement that governs the investment 

of the IRA, and all investment power and control resides with the IRA owner. An 

interpretation that Congress chose to exculpate any person who might be deemed a 

fiduciary from responsibility or liability in respect to a participant-directed employee 

benefit plan, but that Congress intended to impose fiduciary responsibility and liability on 

persons similarly assisting IRA owners is inconsistent with the unambiguous legislative 

intent clearly expressed when ERISA was adopted—and which has been reaffirmed as 

ERISA has been amended over the past 40 years. 

Despite this express allocation of individual responsibility by Congress, the 

Department now attempts to make any recommendation with regard to the investment of 

any plan or IRA a fiduciary action, which will trigger the concerns discussed above. 

To illustrate this point, assume a plan with fewer than 100 participants chooses 

not to designate any particular investment options under the plan, but instead affords the 

plan participants the right to direct the investment of their assets in any publicly traded 

security or any open-ended mutual fund. If the person who effects the transactions on 

behalf of the plan provides a recommendation to a participant, such person would be a 

fiduciary to the participant. Under the Proposal, that person will be potentially subject to 

an excise tax under the Code because the Department has asserted that the exculpatory 

 39 29 U.S.C. § 1104(c). 
19 

provisions of Section 404(c) do not exempt a fiduciary from the excise taxes under the 

Code.40 

To avoid such an excise tax under the Department’s Proposal, the financial 

professional and/or financial institution would need to agree to contractual 

responsibilities and liabilities under ERISA that Congress expressly provided would not 

be applicable to them as service providers. Similarly, if a service provider makes a 

recommendation to an employee benefit plan participant with regard to the decision to 

roll over her account assets to an IRA—a decision that would be totally within the control 

of the participant—the service provider would need to agree to the conditions of the BIC 

Exemption to avoid potential excise tax exposure, and then be subjected to liabilities 

Congress did not intend in such circumstances. 

Finally, the Department ignores the fact Congress amended ERISA regularly 

during the 40 years since its enactment, including adding a specific prohibited transaction 

exemption as part of the Pension Protection Act of 2006.41 That exemption addresses 

advice provided by computer-generated programs and advice provided by a fiduciary 

under a participant-directed plan that might otherwise be conflicted. 

It is well established that Congress is deemed to accept the interpretations of a 

regulatory agency promulgated prior to amendments to statutory provisions. 

Congress is presumed to be aware of an administrative or judicial 

interpretation of a statute and to adopt that interpretation when it re-enacts 

a statute without change.... So too, where, as here, Congress adopts a new 

law incorporating sections of a prior law, Congress normally can be 

presumed to have had knowledge of the interpretation given to the 

incorporated law, at least insofar as it affects the new statute.42 

The Department’s argument that Congress was not aware of the types of advice 

and investments made in IRAs and self-directed-plans loses any efficacy in light of the 

subsequent amendments to ERISA, especially those adopted in 2006. Congress clearly 

would have been aware of obvious changes in investment practices at that time, yet it 

took no action to change the interpretation of investment advice promulgated by the 

Department immediately after the enactment of ERISA. As a result, the Department 

 40 29 C.F.R. § 2550.404c-1(d)(3). 

41 U.S. CONGRESS, Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat. 952 (August 17, 

2006), available at http://www.gpo.gov/fdsys/pkg/PLAW-109publ280/pdf/PLAW-109publ280.pdf. 

42 Lorillard, Div. of Loew’s Theatres, Inc. v. Pons, 434 U.S. 575, 580-581 (U.S. 1978) (citing 

Albemarle Paper Co. v. Moody, 422 U.S. 405, 414 n. 8 (1975); NLRB v. Gullett Gin Co., 340 U.S. 

361, 366 (1951). 
20 

cannot radically modify its interpretation of the definition of investment advice in the 

manner proposed. 

VI. The Department Grossly Underestimates the Cost and Burden of 

Compliance 

The Department has grossly underestimated the cost and burden of complying 

with the Proposal. In the proposed BIC Exemption, the Department seeks to impose an 

elaborate disclosure system, which not only requires the assembly and reporting of 

detailed, far-reaching information not currently accumulated, but includes disclosure 

updating and formatting requirements. Compliance will require extensive new 

information technology systems that do not currently exist and the development of 

ongoing data integrity processes. Compliance with these disclosure requirements is 

necessary to receive an exemption from substantial incremental excise taxes under the 

Proposal. 

Institutions will need to develop complex and elaborate compliance systems so 

that data are properly accumulated, maintained, and disclosed. Some of the required data 

is outside of the control of the financial professional and/or institution (e.g., total cost of 

the product, and related fees and charges), and the financial professional or institution 

will need to obtain this information from the product manufacturer. The Department 

must consider the need for institutions to develop new systems—including entirely new 

and never before used compensation structures—to comply with the warranties included 

in the BIC Exemption, and systems and structures to assure and constantly test 

compliance with the requirements of the warranties. 

A few illustrations demonstrate how the Department grossly understated the 

financial impact of compliance with the régime it has constructed. Given the breadth of 

its definition of investment advice in determining whether someone is acting as a 

fiduciary, any person receiving compensation (directly or indirectly) in connection with 

any recommendation made to a Retirement Investor will engage in a prohibited 

transaction unless an exemption is available. Thus, under the Proposal, all persons will 

generally need to rely on the BIC Exemption to continue to service the Retirement 

Investor market using a commission-based investment model. 

With regard to the legal costs an institution relying on the BIC Exemption will 

incur, the Department: 

. . . estimates that drafting the PTE’s contractual provisions, the notice to 

the Department, and the limited menu disclosure will require 60 hours of 

legal time for financial institutions during the first year that the financial 

institution uses the PTE. This legal work results in approximately 168,000 

hours of burden during the first year and approximately 13,000 hours of 
21 

burden during subsequent years at an equivalent cost of $21.8 million and 

$1.7 million respectively.43

Sixty (60) hours of legal time is seven and one-half eight hour days for a single attorney. 

This estimate is given in the face of the Department promulgating hundreds of pages of 

materials in connection with the Proposal, which has taken more than 200 hours of time 

for individual legal departments of certain affected financial institutions to review 

(excluding time billed by outside counsel), let alone implement. 

 The Department’s estimate also does not reflect the time necessary to develop 

required training programs for financial professionals who will need to operate within the 

conditions of the BIC Exemption, explain the conditions of the Exemption to clients, and 

further explain the complex legal analysis on which the condition of the BIC Exemption 

applies only to their retirement accounts and not their personal accounts. 

 It does not include time spent on developing compliance programs to assure farreaching and elaborate BIC Exemption conditions are, and continue to be, met. Nor does 

it include time for attorneys to explain to institutions’ management the complex rules 

imposed by the BIC Exemption, and to analyze risks of compliance so management can 

decide whether to undertake the burdens imposed. 

 The Department’s estimate also ignores the time needed to review existing 

compensation arrangements, including but not limited to current contracts with financial 

professionals and third-party agreements (e.g., with mutual funds and wire houses), and 

negotiate changes to them. Plus, the estimate does not cover the likely expenditure of 

legal time and expense associated with defending alleged violations of the sweeping 

contractual provisions required with the BIC Exemption. Even meritless claims will 

trigger substantial legal effort to dismiss them. These are only examples of legal work 

required in connection with the BIC Exemption. 

 

 The Department’s projections of information technology expenses associated 

with the Proposal and the BIC Exemption also are materially understated: 

The Department estimates that updating computer systems to create the 

required disclosures, insert the contract provisions into existing contracts, 

maintain the required records, and publish information on the Web site 

will require 100 hours of IT staff time for financial institutions during the 

first year that the financial institution uses the PTE. This IT work results 

in approximately 280,000 hours of burden during the first year and 

 43 Proposing Release, Legal Costs, 80 Federal Register at 21982. 
22 

approximately 22,000 hours of burden during subsequent years at an 

equivalent cost of $22.3 million and $1.8 million, respectively.44

Although the Department assumes financial professionals and/or institutions could 

manage IT costs through automation of disclosures posted on their websites, FSR 

understands from its members that a more accurate range of expenses for information 

technology resources to implement the BIC Exemption (including compliance and related 

controls) in the first year is $1 million to at least $100 million per institution, with 

annual compliance costs ranging from $400 thousand to $20 million, depending on the 

size and nature of the member financial institution’s business operations. Our members 

estimate they would require at least thirty-six (36) months to bring their companies into 

compliance with the Proposal.45 

The Department assumes that nearly all financial institutions already 

maintain Web sites and that updates to the disclosure required by Section 

III(c) could be automated. Therefore, the IT costs required by Section 

III(c) would be almost exclusively start-up costs. The Department invites 

comment on these assumptions.46

 So, for each institution, the Department is predicting the extensive information 

for both the institution’s website and each recommendation the institution makes 

(whether that recommendation is accepted or rejected by the Retirement Investor) will 

only require one member of the institution’s IT department to spend 121⁄2 eight-hour 

working days. Of course, it will likely take more than one person to effect these changes. 

So, according to the Department’s estimate, a two-person team would only require 61⁄4 

eight-hour working days, and a three-person team will have it all implemented, tested and 

operational in about 4 days’ time. It will likely require more than 100 hours to merely 

identify the sources required to fulfill the Department’s disclosure requirements, let alone 

write programs to capture that information, distill it into the proper format for delivery to 

the investors and place it on the website, and then test the systems to assure the 

information being provided to satisfy the various disclosure requirements is accurately 

conveyed. 

 

 44 Id., IT Costs. 

45 The size of the teams necessary to design, implement and support the new systems average about 

17 employees, and include the following functions: program managers, business leads, business 

analysts, compliance, regulatory, and legal personnel, and various IT personnel (project managers, 

solution architects, network architects, programming managers, GUI designers, testing managers, test 

designers, programmers, and information managers). 

46 Proposing Release at n. 54, 80 Federal Register at 21982. 
23 

 But perhaps the most amazing estimates relate to implementation of the 

contractual requirement. 

The Department estimates that approximately 21.3 million plans and IRAs 

have relationships with financial institutions and are likely to engage in 

transactions covered under this PTE. The Department assumes that 

financial institutions already maintain contracts with their clients. 

Therefore, the required contractual provisions will be inserted into existing 

contracts with no additional cost for production or distribution.47

 These assumptions are made with no support and are inherently flawed. In a 

number of instances, no written contract exists related to the services provided to 

institutional clients. Even where such contracts exist, this estimate presumes no 

personnel time will be required to assure proper updating of existing contractual 

provisions is effected for thousands of contracts. The Department simply ignores the 

work required to make these contract changes. 

 For instance, each financial institution will need to review all existing contracts 

to determine changes needed to comply with the BIC Exemption, and then required 

changes for each contract will have to be drafted and reviewed. The financial institution 

will need to notify clients of changes to their contracts, taking into account any notice 

requirements contained in the existing contracts. 

 Financial institutions also will incur costs to distribute updated contracts to 

current clients, especially those to whom a paper copy will need to be mailed. The time 

spent to satisfy the written contract requirement may be limited, if the Department 

expressly provides changes to the contracts may be implemented by negative consent 

(and the existing contracts make similar provision).48 Either way, compliance with this 

provision will require significant effort, time and money. 

 Financial institutions also will rely on their legal and compliance personnel to 

draft and implement new policies and procedures (including appropriate training for 

supervisory and other personnel)—all of which will require substantial time and 

attention. The Department’s estimate significantly underestimates these costs. 

 The estimate seems to also mistakenly reflect that Retirement Investors will 

simply embrace changes without question or comment and that no discussion will ensue 

regarding the changes in their relationship with their advisers. Accordingly, the 

Department’s estimate with regard to the contractual requirement of the BIC Exemption 

 47 Id., Production and Distribution of Required Contract, Disclosure and Notices, at 21982. 

48 We understand that implementation of the contract provision through a “negative-consent” process 

may, however, not be permitted by insurance authorities in certain jurisdictions.
24 

fails to recognize efforts required to assure a contract is implemented for every existing 

Retirement Investor client. It also fails to take into account the cost for contract 

negotiations with potential and future clients. 

 The Proposal will require an extensive revision of the manner in which services 

have been provided to Retirement Investors. As a result of the Proposal, a financial 

professional who services both the Retirement Investor’s retirement assets and the 

investor’s personal accounts will be subject to very different rules and limitations with 

regard to the retirement account that will not be applicable to the investor’s taxable 

account. This sea change will cause confusion for clients without any benefit that would 

outweigh the burden created for financial professionals and institutions. 

 Moreover, while the Department has not made compliance with warranties a 

condition to the applicability of the BIC Exemption for purposes of avoiding the 

potentially draconian excise tax exposure, these warranties are part of the contract that 

each financial institution will need to enter into with Retirement Investors. It is unclear 

what liability may arise from failure to comply with such warranties, and any prudent 

institution will need to expend substantial resources to monitor compliance with these 

warranties. 

 The Proposal affords each Retirement Investor the opportunity to challenge an 

institution’s compliance with the extensive disclosure, warranties and other requirements 

of the BIC Exemption. Institutions will face the prospect of continuous legal challenges 

as a result. Many of these challenges are likely to prove meritless, technical in nature or 

otherwise not cause material damage to Retirement Investors. The institutions, however, 

will need to devote substantial resources to responding to the extensive discovery 

requests that will derive from the conditions of the BIC Exemption, and to having these 

claims adjudicated and dismissed. 

We note that Secretary Perez recently acknowledged that the Department did not 

provide any cost estimates for increased litigation in the Department’s regulatory impact 

analysis,49 thereby putting in question whether the requirements of the Administrative 

Procedure Act have been satisfied. 

 49 Testimony of Secretary Thomas E. Perez, U.S. Dept. of Labor, U.S. HOUSE COMM. ON EDUC. AND 

THE WORKFORCE SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS (June 17, 2015) 

(testifying that “we now have a controlled experiment going on because there’s a substantial subset of 

people in this space who are already fiduciaries. So if your theory is correct that if you are operating 

under the best-interest standard you are more susceptible to litigation, that hasn’t been borne out. 

There’s no evidence that folks who are fiduciaries get sued more often. What the evidence shows is 

that when times are good, there tend to be less lawsuits against advisers. And when times are bad, 

there tend to be more lawsuits, regardless of whether you’re a broker dealer or whether you’re a 

fiduciary”). 
25 

VII. BIC Exemption Imposes Conditions Unnecessary for the Protection of 

Retirement Investors and Provides Remedies Beyond Those 

Authorized Under ERISA 

To be eligible for the BIC Exemption, financial professionals (and any financial 

institution retaining the services of such financial professional) must enter into a written 

contract affirmatively acknowledging they are fiduciaries under ERISA or the Code with 

regard to any recommendation made to the Retirement Investor, and setting forth certain 

representations and warranties to the Retirement Investor. 

Pursuant to the contract, the financial professional and the financial institution 

must agree that: 

(1) each will provide investment advice that reflects the care, skill, prudence, 

and diligence under the circumstances then prevailing that a prudent person would 

exercise based on the investment objectives, risk tolerance, financial 

circumstances, and needs of the retirement investor, without regard to the 

financial or other interests of the financial professional, financial institution or any 

of their respective affiliates or any other party (the “Impartial Conduct 

Standards”); 

(2) each will not recommend any assets for purchase if the total amount of 

compensation anticipated to be received by the financial professional, the 

financial institution, and their respective affiliates and any related entities in 

connection with the purchase, sale or holding of the asset will exceed reasonable 

compensation in relation to the total services provided to the retirement investor 

(the “Total Compensation Condition”); and 

(3) all statements they make regarding the asset, the fees, the material conflicts 

of interest that they face in connection with the proposed transaction, and any 

other matters relevant to the investor's investment decisions, will not be 

misleading. 

In addition, the BIC Exemption imposes a number of additional warranties that the 

financial professional and/or the financial institution must make, including: 

(1) the financial professional, the financial institution, and their respective 

affiliates will comply with all applicable federal and state laws regarding the 

rendering of the investment advice, the purchase, sale and holding of the asset, 

and the payment of compensation related to the purchase, sale and holding of the 

asset; 
26 

(2) the financial institution has adopted written policies and procedures 

reasonably designed to mitigate the impact of material conflicts of interest and 

ensure that its individual financial professionals adhere to the Impartial Conduct 

Standards; and 

(3) neither the financial institution nor (to the best of its knowledge) any 

affiliate or related entity uses quotas, appraisals, performance or personnel 

actions, bonuses, contests, special awards, differential compensation or other 

actions or incentives to the extent they would tend to encourage individual 

financial professionals to make recommendations that are not in the best interest 

of the retirement investor. 

 If the Impartial Conduct Standards and the Total Compensation Condition are 

satisfied, it is difficult to envision a circumstance in which a breach of the warranties 

would occur. Accordingly, the warranties seem redundant and unnecessary to the 

protection of the individual Retirement Investor. 

Separately the warranties also create liability risk for the financial professional or 

institution because they give incentive to unharmed Retirement Investors to bring claims 

for violations. For example, if an institution failed to identify each of the potential 

material conflicts that could exist or had a compensation structure that could be said to 

encourage violations of the Impartial Conduct Standards, but such omission or such 

compensation structure did not cause a violation of such Standards as to Retirement 

Investor A, there would be no harm to Retirement Investor A. On the other hand, if the 

institution’s compliance failures caused a violation of the Impartial Conduct Standards to 

Retirement Investor Z, the financial professional and institution would be liable to 

Retirement Investor Z for their breaches. However, the financial professional and 

institution could also be liable to the unharmed Retirement Investor A. 

It is unclear why the interests of an unharmed Retirement Investor are furthered 

by deeming the financial professional or institution to be in breach of its warranties, if 

such breach occurs with regard to its conduct toward a second investor. The second 

investor would certainly have a claim under the BIC Exemption if the applicable 

standards were not met in the context of his account, and would be empowered to address 

that damage under the contract mandated by the BIC Exemption. On the other hand, 

applying basic principles of contract law, it is impossible to ascertain damages to an 

unaffected investor if the Impartial Conduct Standards and the Total Compensation 

Condition have been satisfied. 

It appears warranties may have been included to afford the Department (which 

lacks direct regulatory authority) an opportunity to monitor or regulate the conduct of 

financial professionals and financial institutions, by empowering the plaintiff’s bar to 

enforce compliance with these standards of conduct through class action breach of 

contract law suits, despite the absence of harm to a particular Retirement Investor. 
27 

 Moreover, nothing in ERISA creates an independent individual right or remedy 

for any affected individual due to a violation by a fiduciary of a state law or other federal 

law. Of course, to the extent a violation of any such law would in and of itself cause a 

violation of the fiduciary’s duties under ERISA, then there would be a right and remedy 

against that fiduciary under ERISA. In the context of the BIC Exemption, that 

circumstance would be adequately protected by the Impartial Conduct Standards. 

 FSR sees no reason why the BIC Exemption should, as a condition to 

complying with an exemption from the prohibitions otherwise imposed by ERISA and 

the related provisions of the Code, afford a Retirement Investor a private right of action 

not provided by ERISA or the Code themselves. If the Impartial Conduct Standards and 

Total Compensation Condition are satisfied, any institution and financial professional 

that has accepted and acknowledged status as a fiduciary will have fulfilled their 

respective obligations as a fiduciary. The additional contractual cause of action with 

regard to such other laws is not necessary to further the interests of such Retirement 

Investor under ERISA, as enacted by Congress and as extended to service providers of 

IRAs by the other conditions of the BIC Exemption. The Department should eliminate 

the warranty requirements from any final rule adopted to implement the BIC Exemption 

as a result. 

a. Disclosure Requirement is Overbroad and Unnecessary 

In support for the proposed expanded definition of investment advice, the 

Department states: 

Disclosure alone has proven ineffective to mitigate conflicts in advice. 

Extensive research has demonstrated that most investors have little 

understanding of their advisers’ conflicts, and little awareness of what 

they are paying via indirect channels for the conflicted advice. Even if 

they understand the scope of the advisers’ conflicts, most clients generally 

cannot distinguish good advice, or even good investment results, from 

bad. The same gap in expertise that makes investment advice necessary 

frequently also prevents investors from recognizing bad advice or 

understanding advisers' disclosures. Recent research suggests that even if 

disclosure about conflicts could be made simple and clear, it would be 

ineffective—or even harmful.50

 Consistent with this view, the Department has proposed a definition of 

“investment advice” for purposes of determining who is a fiduciary under ERISA and the 

Code assigns a fiduciary status to any person who receives a fee, directly or indirectly, in 

connection with a recommendation of any investment for the benefit of a Retirement 

 50 Proposing Release, 80 Federal Register at 21953. 
28 

Investor, including one involving the rollover of assets into an IRA. It has proposed 

exemptive relief from the prohibited transaction provisions of ERISA and the Code that 

require that any adviser or associated financial institution must comply with the Impartial 

Conduct Standards and the Total Compensation Condition. 

 If the Department’s definition of investment advice is applied, any person who 

receives a fee or other commission in connection with rendering a recommendation to a 

Retirement Investor will incur potentially substantial penalties if such person does not 

meet these conditions of the BIC Exemption. Such conditions, standing alone, should 

more than suffice to assure the Retirement Investor is protected from conflicted advice 

and be comfortable in relying on the recommendation of the adviser. 

 Yet, on top of these significant conditions, the Department proposes to require 

financial professionals or institutions to make substantial, material disclosures of the fees 

on their websites and with respect to each individual transaction, as a condition to 

reliance on the BIC Exemption. With regard to the website disclosure, the Department 

has provided a requirement that 

the Financial Institution maintains a public Web page that provides several 

different types of information. The Web page must show the direct and 

indirect material compensation payable to the Adviser, Financial 

Institution and any Affiliate for services provided in connection with each 

Asset (or, if uniform across a class of Assets, the class of Assets) that a 

plan, participant or beneficiary account, or an IRA, is able to purchase, 

hold, or sell through the Adviser or Financial Institution, and that a plan, 

participant or beneficiary account, or an IRA has purchased, held, or sold 

within the last 365 days, the source of the compensation, and how the 

compensation varies within and among Asset classes. The Web page must 

be updated at reasonable intervals, not less than quarterly. The 

compensation may be expressed as a monetary amount, formula or 

percentage of the assets involved in the purchase, sale or holding. The 

information provided by the Web page will provide a broad base of 

information about the various pricing and compensation structures adopted 

by Financial Institutions and Advisers. The Department believes that the 

data provided on the Web page will provide information that can be used 

by financial information companies to analyze and provide information 

comparing the practices of different Advisers and Financial Institutions. 

Such information will allow a Retirement Investor to evaluate costs and 

Advisers’ and Financial Institutions’ compensation practices.51

 51 Proposing Release, 80 Federal Register at 21973. 
29 

The Department concludes the lack of Retirement Investors’ expertise makes 

them incapable of distinguishing good advice, or even good results, from bad. If the 

Department’s perception of the capabilities of the Retirement Investors is correct, this 

extensive disclosure will not likely afford material benefit to a Retirement Investor. 

 With regard to the specific transaction disclosure, the Department has proposed as 

a condition of the BIC Exemption that elaborate and detailed disclosures be provided in a 

specified format. 

The exemption requires point of sale disclosure to the Retirement Investor, 

prior to the execution of the investment transaction, regarding the all-in 

cost and anticipated future costs of recommended Assets. The disclosure is 

designed to make as clear and salient as possible the total cost that the 

plan, participant or beneficiary account, or IRA will incur when following 

the Adviser’s recommendation, and to provide cost information that can 

be compared across different Assets that are recommended for investment. 

In addition, the projection of the costs over various holding periods would 

inform the Retirement Investor of the cumulative impact of the costs over 

time and of potential costs when the investment is sold.52

As proposed, the disclosure requirement of Section III(a) would be 

provided in a summary chart designed to direct the Retirement Investor’s 

attention to a few important data points regarding fees, in a time frame that 

would enable the Retirement Investor to discuss other (possibly less 

costly) alternatives with the Adviser prior to executing the transaction. 

The disclosure chart does not have to be provided again with respect to a 

subsequent recommendation to purchase the same investment product, so 

long as the chart was previously provided to the Retirement Investor 

within the past 12 months and the total cost has not materially changed.53

With such specific and detailed information provided to the Retirement Investor about a 

specific investment, it is not clear how the general website disclosure will further assist 

the Retirement Investor, particularly in the context of a rule designed to protect the 

Retirement Investor from specific conflicted investment advice. 

 The “summary chart” should be a one-page document that presents the 

information in a standardized format. The information should be presented in a clear and 

concise manner using “plain English” narrative disclosures that investors can easily 

understand. 

 52 Id. 

53 Id. 
30 

 If the Department truly believes Retirement Investors “generally cannot 

distinguish good advice, or even good investment results, from bad” and the “gap in 

expertise that makes investment advice necessary frequently also prevents investors from 

recognizing bad advice or understanding advisers' disclosures,” then the Department is 

mandating the disclosure of massive amounts of financial information to persons the 

Department has said are not capable of evaluating or understanding such information. If 

the Department views Retirement Investors as capable of understanding and evaluating 

such information, sufficiently to justify the burden of providing such disclosure, then 

such disclosure, standing alone, should be sufficient to afford Retirement Investors 

adequate protection when directing investments, and the remaining conditions of the BIC 

Exemption are not necessary. 

 The financial professional and the institution must represent and warrant 

compliance with the Impartial Conduct Standard and the Total Compensation Condition. 

The combination of the expansive definition of investment advice and the elaborate 

conditions proposed with respect to the BIC Exemption place the responsibility for any 

recommendation at the feet of the adviser and the financial institution, essentially in the 

same manner as if they had sole discretion over the decision-making with respect to the 

investment. 

 If the adviser and institution satisfy the Impartial Conduct Standard and the 

Total Compensation Condition in these circumstances, in providing advice in reliance on 

the BIC Exemption and having acknowledged their status as fiduciaries to the Retirement 

Investor, then the provision of reams of detailed information about potential conflicts, 

their overall fees structure and the expenses, the Retirement Investor may incur in making 

the investment adds no additional protection for the Retirement Investor. 

 Such disclosure—or at least some portion of that disclosure—would be 

appropriate in a circumstance where the regulatory régime places the responsibility for 

the investment decision with the Retirement Investor. But it seems difficult to understand 

why the financial advisor or institution should undertake the substantial expense of 

complying with such disclosure requirements and still have to undertake the 

responsibility to demonstrate the Impartial Conduct Standards and Total Compensation 

Condition have been satisfied, especially if one adopts a view contrary to the stated 

position of the Department that Retirement Investors are capable of understanding and 

evaluating such disclosure. 

b. Limited Definition of Available Assets 

 With regard to trust investments and other investments subject to fiduciary 

standards, many states have established lists of legally permissible investments. 

Congress did not impose any restriction on the type and class of investments that could 

be made by plans subject to ERISA. Indeed, even at common law, where such legal lists 
31 

of investments have been adopted, provision was usually made to allow the grantor of the 

trust to expressly permit a broader range of investments in the document governing the 

duties and responsibilities of the trustee. Through the conditions of the BIC Exemption, 

the Department again chooses to do precisely what Congress specifically determined not 

to do when enacting ERISA. 

 By restricting the application of the BIC Exemption to specific categories of 

investment assets, the Department has essentially created a legal list of permissible 

investments for Retirement Investors, and substituted its judgment for the judgment of 

Retirement Investors. 

The Department has limited the BIC Exemption to assets it believes are common 

investments for IRAs. While the Department has stated that its goal was to identify 

common investments,54 it has listed only those investments that have a readilyidentifiable fair market value or can otherwise be readily valued with a high degree of 

certainty. 

Given the breadth of the definition of “investment advice,” the Department is 

practically eliminating all other classes of investments as legally permissible investments 

by IRAs and small plans, unless the financial professional and institution are providing 

services exclusively under a fee for service model. If Congress wanted to further restrict 

assets that may be held by IRAs, it would amend Code Section 408(m) to reflect such a 

decision. It has not done so. 

The restrictions in the Proposal would deny Retirement Investors access to a class 

of investments that can be beneficial for retirement savings and may enhance overall 

returns, or protect against risk of loss. There are legitimate and compelling reasons for 

some clients to invest in assets outside of those recognized by the Department. The 

Department should not substitute its judgment for that of the client or Congress. 

In enacting and amending ERISA, Congress did not choose to limit the types of 

investments available to Retirement Investors. Congress allowed investments in all types 

of assets. The Department should not develop a condition that has the practical effect of 

denying Retirement Investors access to assets that may be beneficial to them solely to add 

“belts and suspenders” to standards of conduct that already more than assure fair 

treatment of Retirement Investors. However, if the Department insists on limiting the 

assets which may be recommended in reliance on the BIC Exemption, a number of 

technical adjustments are necessary to protect the interests of Retirement Investors. 

First, many investors will have acquired non-qualifying assets prior to the 

effectiveness of the final rule implementing the Department’s Proposal. The current 

 54 Proposed Best Interest Contract Exemption, 80 Federal Register 21960 at 21967. 
32 

grandfathering rule would preclude the provision of assistance to such investors with 

regard to such investments. Similarly, after the effectiveness of the final rule, it is quite 

likely that Retirement Investors will acquire non-qualifying investments on a derivative 

basis from qualifying investments. Again, advice could not be provided to them 

concerning those assets, despite the investor’s need for advice. This would not be in the 

best interests of Retirement Investors. 

Accordingly, the BIC Exemption should provide a broader grandfather provision 

that would allow Retirement Investors adequate access to advice on assets held if and 

when the Department’s Proposal takes effect. Thus, we recommend the Department 

eliminate the Impartial Conduct Standard with regard to the holding of the asset, if 

holding the asset is prudent for the investor, and with regard to the disposition of the 

asset, if and when a disposition is prudent and in the best interest of the Retirement 

Investor. Similarly, with regard to after acquired non-qualifying investments, a similar 

exclusion should apply that would allow financial professionals and financial institutions 

to assist investors to liquidate or otherwise deal with such assets that were not acquired at 

the recommendation of the financial professional or the institution. 

Second, in the context of rollovers from thrift savings plans like Section 401(k) 

plans, participants frequently choose to invest their assets in a managed account, 

investment advisory program, or other program of investments. These programs are 

frequently not legal assets but constitute services. Yet there may be an agreement by the 

Retirement Investor for the provision of these services for a fee to an institution that 

could be perceived under the Proposal to be providing investment advice and making 

recommendations as to investments. If the provision of this kind of program is 

investment advice, and the BIC Exemption is not available for this kind of service 

(because the service is not a permitted asset), then the institution may not be able to 

“recommend” the Retirement Investor participate in its program. 

Prior to the Proposal, one would have simply understood the institution was 

offering to provide the Retirement Investor a service not in a fiduciary capacity, and the 

provision of such service would readily have been exempt (to the extent an exemption 

was needed) under the “service provider exemption” under Section 408(b)(2). However, 

if the recommendation to enter into the program is now “investment advice,” that 

exemption would not be available to the extent the fiduciary is recommending an action 

that would cause the Retirement Investor to pay an incremental fee. Thus, the class of 

recommended “assets” under the BIC Exemption must be expanded to include such an 

investment program, as the broad brush used to paint investment advice would appear to 

include an institution presenting its services to a Retirement Investor in this context. 

Third, there may be circumstances where the structure for the program of 

investment may entail investing in a collective investment vehicle, such as a trust. Such 

collective investment vehicles should be included in the list of acceptable assets under the 

BIC Exemption. Alternatively, the Department could provide an additional carve out to 
33 

make clear an institution recommending an investor retain the institution’s services with 

respect to an investment program not be deemed to be a recommendation that constitutes 

investment advice. 

Fourth, the proposed definition of Asset precludes investing in municipal bonds, 

foreign bonds, foreign equities, foreign currency, options, futures, over-the-counter 

equities (including but not limited to American Depositary Receipts), structured products 

(other than corporate bonds), hedge funds, private equity and other alternative 

investments. These types of investment instruments may be appropriate for certain 

Retirement Investors and the Department should not preclude them. 

Depending on a Retirement Investor’s particular situation (financial goals, risk 

tolerance, etc.), investing in foreign securities, municipal bonds, foreign currency, 

options, futures, or other assets that do not fall within the Proposal’s definition of “Asset” 

may be in the best interest of the Retirement Investor. For example, certain “optionsbased strategies can be useful in improving the risk-return characteristics of a long equity 

portfolio,” such as may be held in a 401(k) plan.55 FSR urges the Department to 

eliminate the list of permissible Assets in the final rule. 

c. The BIC Exemption’s Standards for Impartial Conduct Are 

Unnecessary and Unclear 

 Under the BIC Exemption, a financial professional or institution must provide 

advice in accordance with the Impartial Conduct Standards, which require provision of 

investment advice that reflects “the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent person would exercise based on the 

investment objectives, risk tolerance, financial circumstances, and needs of the 

Retirement Investor, without regard to the financial or other interests of the adviser, 

financial institution or any of their affiliates or any other party.” 

 As discussed above, it is impossible to contend that any such investment 

product or service can be offered without regard to the interest of the individual financial 

professional or institution in making a profit from the conduct of its business. Because 

non-compliance would lead to a breach of warranty action, the BIC Exemption should 

provide unambiguous criteria for determining how to adhere to the Impartial Conduct 

 55 See Michael L. Hemler and Thomas W. Miller, Jr., The Performance of Options-Based Investment 

Strategies: Evidence for Individual Stocks During 2003-2013 at 1 (April 26, 2015) (stating that 

“[adding] options to the portfolio can be a convenient and effective way for the manager to tailor his 

equity position, augment income, or limit risk as market conditions change”), available at

http://www.optionseducation.org/content/dam/oic/documents/literature/files/perf-optionsstrategies.pdf. Based on data from January 2003 through August 2013, the authors “[examined] the 

relative performance of options-based investment strategies versus a buy-and-hold strategy” of “ten 

stocks widely held in 401(k) plans.” Id. at 14. 
34 

Standards. For example, it is unclear under what circumstances a financial professional 

or institution can be assured that any action it takes can be proven to have been taken 

without any regard to its financial or other interest, or that of any of its affiliates. 

 FSR requests the Department revise the language and provide guidance 

(including illustrations) regarding (a) how these standards apply when recommending 

proprietary or affiliated products or any product for which the financial professional or 

financial institution (including their respective affiliates) will receive a benefit; and (b) 

how the financial professional or financial institution is able to establish proof that it has 

indeed satisfied this standard for purposes of the exemption. 

 It is unclear how the Impartial Conduct Standards would apply as between 

clients. For example, financial professionals and financial institutions often discount or 

adjust fees and charges based on the complexities and size of the client’s relationship. 

However, it is unclear whether the financial professional or financial institution would be 

permitted to discount a fee for one client’s account without risking that a second client 

will claim the financial professional or financial institution is not acting in his best 

interest because he is not also getting the lowest fee. 

 Finally, it is unclear how a finding that the financial professional or institution 

breached the Impartial Conduct Standards with respect to a single client would affect the 

ability of the financial professional or institution to rely on the BIC Exemption in general. 

FSR urges the Department to clarify in the final rule implementing the BIC Exemption 

that a financial professional or institution may provide a discount on fees—or other 

accommodation—to a particular client that it does not make available to any other client 

without violating the Impartial Conduct Standards and their application in the context of 

the BIC Exemption. 

d. BIC Exemption Standards Related to Compensation Are Vague and 

Unclear 

Under the BIC Exemption, compensation received by a financial professional or 

institution or their respective affiliates and related entities cannot exceed the total value 

of the services provided to the Retirement Investor. It is not clear from the Proposal 

whether this standard differs from the standard of “reasonable compensation” that has 

generally been used for statutory exemptions under Section 408 of ERISA, including the 

service provider exemption under Section 408(b)(2). In regard to the statutory service 

provider exemption, whether compensation for the provision of a good or service is 

reasonable would generally be determined based on the market value for such good or 

service; that is, what a willing purchaser of such good or service would pay to acquire 

such good or service. For example, whether the amount a doctor, lawyer or entertainer is 

paid for his time and performance is reasonable is determined by market forces and is not 

measured by some other unspecified standard. 
35 

In the BIC Exemption, it appears the Department intends to create an independent 

standard of what constitutes reasonable compensation (or perhaps is attempting to 

redefine what reasonable compensation means for ERISA purposes). As compliance 

with the Total Compensation Condition is a critical element of the BIC Exemption, the 

Department must be absolutely clear and specific about how financial professionals and 

institutions must determine whether compensation is reasonable “in relation to the total 

services provided.” If this standard of reasonable compensation is to be determined on a 

market-based standard (i.e., within a range of amounts customarily paid by investors for 

such services), then the Department should so state. 

If the Department intends for a different standard to apply, the Department should 

not only identify that standard with substantially greater specificity and clarity, but 

should also provide useful and meaningful guidance regarding how to comply with the 

standard. In such case, the Department should provide examples of circumstances that 

would comply with the standard it believes to be applicable to the BIC Exemption, and 

offer specific scenarios that, if met as proposed, would be deemed to satisfy the Total 

Compensation Condition. 

This concept is critical to the ability to comply with the BIC Exemption, and the 

Department needs to define a clear path for financial professionals and institutions who 

wish to rely on the BIC Exemption to comply with this standard. The BIC Exemption is 

entirely impractical because a critical standard for compliance is unspecified. It also 

leaves the financial professional and institution at risk for challenges to the 

reasonableness of compensation arrangement after the fact, regardless of whether the 

client, financial professional, and the institution thought the compensation being paid was 

reasonable at the time the services were rendered. 

e. Limited Investment Alternative Compensation Conditions Are 

Unnecessary and Unclear 

The BIC Exemption also imposes an additional condition when a financial 

institution or adviser offers a finite list of investment alternatives to a Retirement 

Investor. In such case, the total compensation received by the institutional group cannot 

exceed the fair market value of the services provided (the “Fair Market Value 

Condition”). It is unclear how this condition differs from the similar Total Compensation 

Condition. More specifically, how does the “fair market value” of services differ from 

“the total value” of the services provided? As a practical matter, this additional 

condition—which appears aimed at the proprietary products offered by a financial 

institution—will essentially always be applicable, since no institution or adviser will be 

in position (within the standards applicable to an ERISA fiduciary) to offer 

recommendations regarding an unlimited number of investment products. 

Moreover, it is not apparent what incremental level of protection would be 

afforded to a Retirement Investor from this incremental condition. If the Total 
36 

Compensation Condition is met, the Retirement Investor will have received appropriate 

value because the compensation received will not exceed reasonable compensation in 

relation to the total services provided. 

Adding an additional restraint upon the compensation the institution receives does 

not enhance Retirement Investor protection beyond the protection provided by the 

combination of the Impartial Conduct Standards and the Total Compensation Condition. 

Since this condition is not needed to protect the Retirement Investors, the protection is 

not necessary. 

If the Department determines nevertheless to require this incremental limitation 

on compensation received as a condition to availability of the BIC Exemption, the 

Department should clearly and thoroughly explain the difference between the Fair Market 

Value Condition and the Total Compensation Condition. Is the Fair Market Value 

Standard determined by amounts paid for similar products and services in the 

marketplace? If so, how does that standard differ from the Total Compensation 

Condition? Is the Department suggesting services related to the recommendation of 

proprietary products are somehow to be isolated from the overall services provided, and 

the Fair Market Value Standard is to be measured solely against this subset of services? 

As with the Total Compensation Condition, the Department needs to specify a 

clear standard to be met to satisfy the condition and should provide illustrative examples 

of how this standard is to be determined, as well as the circumstances under which this 

standard will be deemed to apply. 

f. The Proposed Disclosure Mechanics Are Impractical

Under the BIC Exemption, the required disclosure of cost projections needs to be 

provided to a Retirement Investor prior to the time a recommendation is made. This 

condition is impractical as proposed. The disclosure required is detailed, and generating 

it will have associated costs. As proposed, the information must be provided before 

adviser financial professional knows whether the Retirement Investor (who has final 

discretionary authority) will have any interest in the asset(s) being recommended. The 

time delay associated with providing this disclosure has not been considered, especially 

as it relates to the cost projections. Prices for securities are constantly changing and 

because there is no de minimis or “good faith” exception, any change in price would 

appear to require a new disclosure. It is unclear how any trade could be timely executed 

given this requirement. The Department should provide in the final rule a de minimis or 

“good faith” exception. 

Additionally, much of the interaction between Retirement Investors and financial 

professionals takes place telephonically. Thus, another avenue for the delivery of 

disclosures will need to be established before the discussion can occur. E-mail and other 

electronic delivery methods could be used. The Department should allow the financial 
37 

professional and institution to rely on the fact that the disclosure information was sent, 

regardless of whether the client has read the disclosure. 

A more practical, and equally protective, approach would be to require the 

information be provided before the recommendation is implemented. A cynic might 

contend that providing the information after the financial professional has made the 

recommendation and discussed it with the Retirement Investor would allow the financial 

professional the opportunity to negate the benefit of the disclosure. However, such a 

view would overlook the proposed BIC Exemption requirement of compliance with the 

Impartial Conduct Standards, which prevents the financial professional or institution 

from making misleading statements to the Retirement Investor.56 If the financial 

professional were to negate the efficacy of the disclosure through other statements, the 

conditions of the BIC Exemption would not be satisfied, regardless of when the 

disclosure is provided. 

VIII. Inadequate Implementation Period 

The Department has proposed an eight (8) month period for the industry to 

implement an extensive overhaul of how it provides services to small plans and IRA 

owners. Contrary public assertions by the Department, the Proposal and the conditions of 

the BIC Exemption are not designed to permit financial institutions to preserve their 

existing business models. Thus, an 8-month implementation period reflects a woefully 

inadequate understanding of industry practice and business limitations. FSR members 

estimate that a transition period of at least 36 months would be necessary to implement 

the Proposal. 

The BIC Exemption disclosure will require the accumulation, distillation and 

dissemination of information no institution currently collects. Given that much of the 

total cost disclosure will be in the hands of product manufacturers rather than financial 

professionals or institutions, time will be necessary to determine how such information 

can be accessed, integrated into data and communication systems and made available to 

investors. That information will also need to be updated with great regularity, and no 

recommendation can be made prior to the delivery of certain elaborate information to a 

Retirement Investor, in the prescribed format. This data gathering will require the 

development of new industry-wide systems for mutual funds and annuities that will take 

 56 However, any material misstatement or omission in connection with the purchase or sale of a 

security that was made using the telephone, U.S. Mail, or other means or instrumentality of interstate 

commerce would violate section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) 

[15 U.S.C. § 78j] and rule 10b-5 thereunder [17 C.F.R. § 240.10.5]. Any person who violates the 

general anti-fraud provisions of the Exchange Act would be subject to civil, administrative, and 

criminal sanctions. See sections 18, 21(d), 21B, and 32 of the Exchange Act [15 U.S.C. §§ 78r, 78u, 

78u-2, and 78ff]. 
38 

substantially longer than 8 months to develop and program, let alone distill and 

disseminate the data gathered in a specified format.57 

A perception may exist that technology is so advanced that even daunting tasks 

can be done instantly and with reasonable cost. The reality is that daunting tasks are 

daunting tasks. Actual experience trying to implement recent legislative and regulatory 

initiatives, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act,58

the Volcker Rule,59 and the disclosure of fees and expenses under the Section 408(b)(2) 

guidance,60 have shown that implementation of complex changes takes time. Indeed, it 

took the Department almost four years just to re-propose its view regarding the scope of 

investment advice that will give rise to fiduciary status. The Department’s proposed 

transition period would require an information gathering system to be developed, tested 

and operational in just a matter of months, at a projected expense level that likely is a 

mere fraction of the true cost of compliance. 

The Proposal would also require a complete overhaul of compensation programs 

applicable to financial professionals and institutions working with Retirement Investors. 

The Department offered suggested approaches that would satisfy the requirements of the 

BIC Exemptions, but all of them required flat fee arrangements. In addition, none of 

these suggestions would meet the objectives served by a compensation program to 

encourage superior effort and performance, while creating incentives for employees to 

remain in service. Financial institutions will need substantially more time than the 

proposed transition period to properly study acceptable incentives that still function to 

reward superior performers and compensate them for operating within the new régime. 

The Department’s perception regarding the ease of implementing the contractual 

requirements of the BIC Exemption also seems fanciful. The Department estimates a 

zero cost for putting into place contracts that pertain to tens of thousands of customers. 

These customers are unlikely to understand the reasons material changes are occurring in 

the way their accounts are administered. They will not understand why they must receive 

elaborate disclosures, even before a recommendation can be made. They will also not 

 57 For example, a securities broker-dealer will have to obtain total cost information related to the 

annuities available on its platform from each annuity carrier, and similar information for the 

thousands of mutual funds. Presumably this will be done by enhancing existing systems like DTCC 

or annuity-net, but those systems will not be built overnight and it will not be under the control of the 

broker-dealer. 

58 Pub. L. No. 111-203 (July 21, 2015). 

59 Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, an Relationships 

With, Hedge Funds and Private Equity Funds” [S7-41-111] (Dec. 10, 2013), available at 

http://www.sec.gov/rules/final/2013/bhca-1.pdf. 

60 Amendment Relating to Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee 

Disclosure/Web Page, 77 Federal Register 41678 (July 16, 2012), available at

http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=26218. 
39 

understand why these requirements apply to their retirement accounts and not their 

personal accounts, when the same financial professional helps them with both accounts. 

So an inordinate amount of time and effort will be required by financial 

professionals and financial institutions to explain these changes, including potentially 

different cost structures Retirement Investors will need to accept under the Proposal. It is 

hard to imagine all this being completed in eight (8) months, especially with institutions 

also being required to comply with the other requirements of the BIC Exemption. And as 

noted above, the requirement that new contracts be negotiated and entered into with 

Retirement Investors will certainly take more than eight (8) months, assuming that it is 

even possible to “re-paper” all existing retirement accounts. 

The Department asks whether there should be a longer transition period for 

certain elements of the BIC Exemption. By raising this question, it appears the 

Department is considering whether the primary conditions could be implemented, at least 

initially, without the mandated disclosure or compliance with some or all warranties. If 

that is the case, it raises the question of whether the secondary conditions are truly 

needed. 

A bifurcated approach is impractical. The Department’s Proposal presupposes 

that institutions could opt to change business models in light of the BIC Exemption 

without knowing whether they can comply with and monitor compliance with the 

requirements of the BIC Exemption. This would encourage risk taking of a type and 

nature criticized heavily by banking, securities, and insurance regulators. 

The provision of the BIC Exemption that precludes any exculpatory provision is 

evidence of the view that the Department is deputizing hundreds of thousands of lawyers 

to monitor and attack institutions. These lawyers will have an economic motivation in 

finding deficiencies. They will be economically motivated to not only pursue 

circumstances where the financial professionals and institutions have failed to meet their 

fiduciary obligations to one or more Retirement Investors, but also to challenge violations 

of the very elaborate technical requirements of the BIC Exemption, regardless of whether 

any corresponding damages have occurred. 

By adding a private right of action under the BIC Exemption for any violation of 

applicable law, the Department is authorizing the plaintiffs’ bar to support regulators in 

every federal agency and every state agency that might have jurisdiction over a financial 

professional or institution. 

In light of this clear invitation to the plaintiff’s bar to challenge the conduct of any 

financial professional or institution that continues to service retirement accounts, no 

prudent individual or institution would engage in such business without a high level of 

certainty that it understands all of the conditions it has to meet, how it will meet such 
40 

conditions, how it will assure it can comply with such conditions, and what it will take to 

document compliance with every requirement contained in the Proposal. 

Thus, a piecemeal phase-in of the BIC Exemption’s requirements is not a helpful 

or practical solution, if the goal and objective is to implement a system that can be 

implemented for the benefit of Retirement Investors. The Proposal and the BIC 

Exception should not become effective until all applicable conditions can be met. That 

will take years as the BIC Exemption is proposed, not months. 

IX. No Need to Revise Existing Exemptions 

The Department has proposed material modifications to three class exemptions 

that have been widely utilized for many years in the effective and efficient administration 

of plan investments. Indeed, the most recently adopted of these exemptions was initially 

promulgated in 1986, nearly 30 years ago. In promulgating these exemptions, the 

Department had to conclude, after a proposal and opportunity for public comment, the 

exemption was in the best interest of plan participants and beneficiaries. 

Thus, the Department previously and formally concluded the currently effective 

conditions were sufficient to safeguard the interests of those plans, plan participants and 

beneficiaries that engaged in transactions in reliance thereon. The Department has 

presented no evidence that indicates the conditions of the current exemptions are no 

longer sufficient to protect the interests of plans and their participants and beneficiaries. 

Moreover, the Department overlooks that transactions effected under the existing 

exemptions by fiduciaries on behalf of employee benefit plans must nonetheless still 

satisfy the requirements of Section 404(a) of ERISA, which are the basis for the Impartial 

Conduct Standard. This is to be contrasted with the BIC Exemption, which on its face 

appears primarily targeted at the investment of IRA assets that Congress chose not to 

subject to the fiduciary responsibility provisions of ERISA. Thus, regardless of the terms 

of the applicable prohibited transaction exemption, the persons serving as fiduciaries and 

receiving the benefit of these pre-existing exemptions must nonetheless comply with the 

fiduciary responsibility provisions of ERISA. 

It is unclear why the currently existing prohibited transaction class exemptions 

need to be revised to include the BIC Exemption Impartial Conduct or other standards, 

especially in the absence of compelling data suggesting the existing exemptions fail to 

protect adequately the interests of plans and their participants and beneficiaries. The 

addition of this requirement to existing exemptions will create significant disruption in 

implementing securities transactions, potentially increase costs for plans, plan 

participants and beneficiaries and potentially threaten the ability to provide best 

execution of securities trades, and likely reduce investment opportunities and advice for 

the plans of small businesses, certain other plans and their participants and beneficiaries. 

The Department should provide detailed findings related to efficacy or perceived lack 
41 

thereof with respect to each of the current exemptions it is proposing to modify or 

eliminate. 

X. Custodial Banks and Others that Provide Valuation Statements 

Perform Administrative—Not Fiduciary—Functions

Banks and trust companies provide safekeeping and recordkeeping services when 

acting as trustees and custodians of plans, plan asset vehicles, and IRAs. These services 

include the production of periodic statements which reflect the reported value of the 

assets and investments held in the plan, plan asset vehicle, or IRA. 

In addition, financial institutions (or one or more of their affiliates) provide 

valuation services to mutual funds, hedge funds, exchange traded funds, and others. 

Among these services are the determination and issuance of the value of the investment, 

such as net asset value (“NAV”) which could be determined daily. These services may 

also include the production of periodic statements which reflect the reported value of the 

assets and investments held in the plan, plan asset vehicle, or IRA. 

Under the Proposal, “investment advice” includes “an appraisal, fairness opinion, 

or similar statement whether verbal or written concerning the value of securities or other 

property if provided in connection with a specific transaction or transactions involving 

the acquisition, disposition, or exchange, of such securities or other property by the plan 

or IRA.” This suggests valuations noted in periodic account statements would be exempt 

from the term “investment advice,” but it is not clear since continuing to hold a security 

is not a transaction involving the “acquisition, disposition, or exchange, of such securities 

or other property by the plan or IRA.” 

The carve-out to this provision states that an appraisal, fairness opinion, and 

statement of value are not considered “investment advice” if, among other things, it is 

provided “solely for compliance with the reporting and disclosure provisions” under 

ERISA or the Code, or under “any applicable reporting or disclosure requirement under a 

Federal or state law, rule or regulation or self-regulatory organization rule or regulation.” 

Not all of the valuation services being provided fall within this exception. 

These two provisions read together could be interpreted to mean that a statement 

of value must fit within this disclosure/reporting provision in order not to be deemed 

investment advice. However, the determination of value is normally a ministerial act or 

may be conducted for purposes of determining whether a collateral requirement has been 

satisfied. The more reasonable interpretation is that statements of value that fall outside 

the ambit of the definition of investment advice are exempt altogether and need not resort 

to the carve-out. This would include, for example, statements of value issued in 

connection with: (i) participant-level transactions based on unit value NAVs, (ii) 

calculation of daily NAV for single plan unitized investment pools within participant-
42 

directed plans, (iii) master trust plan accounting services, and (iv) valuations provided in 

advance of a plan merger. 

Such an interpretation is especially critical, given the need for valuations to be 

provided separate and apart from any advice or recommendation. If a transaction occurs, 

the value is required to be provided. Plans and IRA owners need to know the value of 

investments in the account for various reasons, including required annual tax reporting 

and required minimum distributions. This valuation information, in and of itself, should 

not trigger fiduciary status simply because it relates to the investment. 

This interpretation is also consistent with the statutory framework of ERISA. It is 

common for banks, trust companies, and other financial institutions to prepare and 

provide reports and statements more frequently than required under federal or state law. 

For example, many custodians, trustees, recordkeepers, and other financial institutions (or 

their affiliates) in addition to providing periodic (e.g., monthly or quarterly) statements, 

calculate daily NAVs for investment funds and make available continuous access online 

to current information regarding plan investments. 

 Providing NAVs, periodic statements, and online access and information are 

purely administrative functions and should not be considered a fiduciary act. Therefore, 

the Department should exclude from the final rule’s coverage any statement of value not 

intended as investment advice. 

XI. The Proposal Raises Significant Issues that Require the Department 

to Provide Additional Relief, Clarifications, and Interpretative 

Guidance

a. Definitions of “Recommendation” and “Investment Advice”

We note that the proposed Impartial Conduct Standards would require that the 

service provider agree that it will not “‘recommend’” an Asset if the total amount of 

compensation anticipated to be received by the Adviser, Financial Institution,” and other 

parties . . . will exceed reasonable compensation . . . .”61 We further note that the 

Proposal does not define the term “recommend” for the purposes of the proposed BIC 

Exemption. 

FSR believes the definition of “recommendation” should be clear and 

unambiguous. In our view, the approach FINRA uses for determining the existence of a 

“recommendation,” which was largely adopted by the Department for purposes of the 

Proposal in connection with the definition of “investment advice,” would also be 

appropriate for purposes of the proposed BIC Exemption. Applying FINRA’s approach 

 61 See, Proposing Release, 80 Federal Register at 21984. 
43 

to the Proposal, the term recommendation would encompass only those communications 

that would objectively be viewed as “a ‘call to action,’ or suggestion that the client 

engage in a securities transaction.”62 

Accordingly, for purposes of the Proposal—including the proposed BIC 

exemption—FSR urges the Department to adopt a definition of the term 

“recommendation” that is consistent with FINRA guidance and the principles we discuss 

above, as set forth in the proposed SIMPLE PTE discussed below. In addition, FSR 

requests that the Department provide more specific guidance, including examples, 

regarding application of the definition for purposes of the fiduciary definition and BIC 

Exemption. 

Moreover, the definition and concept of a “recommendation” implicates whether 

or not investment advice has been provided. FSR believes the Department should clarify 

the Proposal so that the definition of “investment advice” incorporates a mutuality 

concept. For purposes of the “investment advice” definition, FSR believes that there 

should be a mutual understanding between the client and the financial professional or 

institution that the recommendations will play a significant role in the client’s decisionmaking. There should also be a mutual understanding within the definition of 

recommendation that the discussion or material is provided for the purpose of acting on 

such recommendation. 

FSR asks the Department to clarify the meaning of the phrase “individualized to, 

or specifically directed to,” to narrow the circumstances under which the definition is 

intended to apply. In our view, the definition should exclude the promotion of services, 

advertising, and marketing available for general circulation, and should permit the 

provision of educational materials as described in Interpretive Bulletin 96-1.63

b. The Department Also Should Provide an Express General “Carveout” for Parties Who Are Just “Sellers”

The breadth of the Proposal is such that one could assert that any seller of any 

good, product or service is providing “investment advice.” It is likely that, in the context 

 62 See, FINRA Policy Statement 01-23. FINRA’s guidance provides that the “‘facts and 

circumstances’ determination of whether a communication is a ‘recommendation’ requires an analysis 

of the content, context, and the presentation of the particular communication or set of 

communications. The determination of whether a ‘recommendation’ has been made, moreover, is an 

objective rather than a subjective inquiry. An important factor in this regard is whether—given its 

content, context, and manner of presentation—a particular communication from a broker/dealer to a 

customer reasonably would be viewed as a ‘call to action,’ or suggestion that the customer engage in a 

securities transaction.” Id. 

63 29 C.F.R. § 2509.96-1. 
44 

of negotiating the sale, the seller of the good or product would make suggestions as to 

why it would be beneficial for the purchasing Retirement Investor to effect the purchase. 

Such person would receive consideration in connection with the transaction that could be 

sufficient to meet the conditions of the proposal. If the purchaser makes its decision in 

part in reliance on the suggestions made by the seller, the seller might be providing 

investment advice. Ordinarily, the provisions of Section 408(b)(2) would provide a 

prohibited transaction exemption for the provision of services, and Section 408(b)(17) 

might apply to the sale of a good. However, if the person is providing investment advice 

as a fiduciary, which would appear to be the case under the Proposal, then these 

exemptions would not be available. 

FSR urges the Department to include an express carve-out—or general statement 

that provides that common sense should prevail, such that no person should be treated as 

having provided investment advice—and therefore be deemed to be a fiduciary—in any 

circumstances where the recipient of the advice should have no reasonable expectation 

that the party providing such advice is acting in the Retirement Investors’ interest. This 

should include any entity selling a good or service where it is not otherwise providing 

services to the Retirement Investor, or offering its services to the investor for the first 

time. 

c. The Department Should Provide an Express “Carve-out” for Offering 

Services

A financial professional or institution offering services to a Retirement Investor 

likely would be deemed to be offering investment advice under the Proposal. Such an 

entity will likely be deemed to be suggesting it be retained as an investment manager. In 

promoting services and illustrating possible benefits of using these services, the adviser 

may be making recommendations that could be implemented, if the financial professional 

or institution is retained. The same is true when a financial professional or institution 

responds to a request for information (“RFI”) or a request for a proposal (“RFP”). In 

responding to an RFI or an RFP, it is unlikely the requestor would be confused and think 

that the financial professional or institution was acting in any capacity other than merely 

recommending its own services. 

Such a recommendation would not meet the requirements of the BIC Exemption 

because the exemption is not available for recommendations of services or investment 

programs, the required contract would not have been in place, and the mandated 

disclosure will not likely have been provided. Additionally, it is impossible to conclude 

that, when recommending that a Retirement Investor retain the entity’s services, the 

entity is not acting in its own interests. If the Department did not intend to include the 

efforts of an entity or other person offering its own services for hire by a client as 

investment advice, a simple additional carve-out to the proposed amendment to the 

regulation would resolve this concern. 
45 

FSR also requests guidance concerning the circumstances under which 

advertising and marketing services to clients may be considered a recommendation, and 

guidance regarding the extent to which the best interest standard and BIC Exemption 

apply to the recommendation of the financial professional or institution’s services. 

Advertising and marketing materials distributed broadly, or recommending one’s own 

services, should not constitute a “recommendation” resulting in fiduciary status. 

d. Grandfathering

Additionally, when investors invest in a mutual fund complex and pay a fee in 

connection with their initial investment, the investors are paying for future investment 

advice. The grandfathering provision ignores this fact. To the extent the investment is 

not one of the proposed permissible assets approved for use in connection with the BIC 

Exemption, the Retirement Investor will be deprived of access to advice for which the 

investor already paid. 

If ongoing fees are payable for investments made in such a mutual fund complex 

prior to the effective date of the Proposal and the BIC Exemption, and transfers among 

investment options within such a complex are permitted without additional fees, the 

grandfathering provisions of the BIC Exemption would preclude investors from receiving 

no-additional cost advice to the extent that the complex offered investment options not 

included on the Department’s approved list of investments. 

Accordingly, the Department should expressly allow financial professionals or 

institutions to provide advice to Retirement Investors with respect to investments within a 

complex of investments made prior to the effectiveness of the BIC Exemption, regardless 

of whether such investments are otherwise eligible for the BIC Exemption, where such 

advice is generally provided at no additional cost to the Retirement Investor.64

e. Proprietary Products 

The Department should provide a specific mechanism for a financial professional 

or institution to recommend proprietary and affiliated products. As stated throughout our 

letter, the Department should provide guidance—including illustrations—regarding how 

the best interest standard applies to recommendations of proprietary products or affiliated 

services. Specifically, the Department should address how a financial professional or 

institution can prove a recommendation of proprietary products was “without regard to 

the financial or other interest of the adviser, financial institution, or affiliate;” and how to 

determine, and comply with, the proposed additional reasonable compensation standard 

with respect to the provision of proprietary products. 

 64 However, financial professionals and institutions would be permitted to charge for services, 

including execution and regular account maintenance fees. 
46 

f. Networking Arrangements and Referrals

Referral arrangements often exist between departments within a financial 

institution (such as those made pursuant to a Regulation R65 networking agreement) or 

between non-investment related professional and investment advice professionals. These 

arrangements encourage non-investment personnel to recognize opportunities for 

retirement savings and provide access to a professional to provide much needed advice to 

clients. It is not in the best interest of Retirement Investors to deter or stop these 

arrangements and referrals, especially since the referred financial professional or 

financial institution will be under a duty to act in the client’s best interest. 

Fiduciary status should not extend to unsolicited and non-individualized referrals 

to financial professionals or institutions. Fiduciary status should be placed with the 

financial professional or institution providing advice to the client, not the person or entity 

whose sole role is that it made the referral. The Department should provide a specific 

“carve-out” for non-individualized referral recommendations or provide clarification that 

such arrangements would not be considered fiduciary advice under the Proposal. 

The Department should also make it clear that the counterparty exception or 

another exception from the fiduciary definition would be available for service providers 

when selling the services of an affiliate or third-party adviser (such as a solicitor 

arrangement pursuant to rule 206(4)-3 under the Investment Advisers Act of 

194066). Fiduciary obligations should not extend to arms-length referrals where neither 

side assumes the counterparty to the plan, plan participant or beneficiary, or IRA is acting 

as an impartial trusted adviser, but the seller is making representations about the value 

and benefits of a proposed service. 

The Department has not identified any risk of harm under these circumstances 

where the communications are non-individualized and fully transparent. This is 

especially true where a referral will satisfy all the conditions set forth in the counterparty 

exception or where a plan fiduciary, plan participant or beneficiary, or IRA owner has the 

expertise to evaluate the transaction and to determine whether the transaction is prudent 

and in the best interest of the plan, the plan’s participants or beneficiaries, or IRA. To the 

extent the Department believes these referrals fall outside of the seller’s exemption, we 

urge the Department to provide a separate exemption for these arrangements in order to 

maintain the recognizable benefits to clients and address any perceived harm. 

 

 65 FEDERAL RESERVE SYSTEM and SEC. & EXCH. COMM’N, Definitions of Terms and Exemptions 

Relating to the “Broker” Exceptions for Banks (Oct. 3, 2007), available at

http://www.gpo.gov/fdsys/pkg/FR-2007-10-03/pdf/07-4769.pdf. 

66 17 C.F.R. § 280.206(4)-3. 
47 

g. Warranty Requirements in the BIC Exemption 

 In Section VII, FSR urges the Department to delete the warranty requirements 

in the BIC Exemption because they are redundant with other aspects of the Proposal. 

However, if the Department decides to retain the warranty requirements within the BIC 

Exemption, the Department should provide further clarity regarding various terms and 

definitions identified. Non-compliance with these representations would subject a 

financial professional or financial institution to liability for a breach of warranty action. 

Financial professionals and financial institutions would benefit greatly from clarification 

concerning how to comply with the specific conditions of the exemption. 

 In particular, FSR asks the Department to: 

 Provide further guidance and illustrations concerning the phrase “reasonably 

designed to mitigate the impact of material conflicts of interest.” Financial 

professionals and financial institutions need specificity on the content of written 

policies and procedures that would comply with the exemption; 

 

 Clarify the meaning of the term “material” in the definition of “material conflict 

of interest,” and provide a de minimis standard that would be applicable when 

identifying potential conflicts of interest; 

 Provide further clarity on the meaning of the phrase “would tend to encourage 

individual advisers to make recommendations that are not in the best interest of 

the Retirement Investor;” and 

 Clarify that the financial professional or financial institution has no obligation to 

warrant compliance with the BIC Exemption’s compensation structures by any of 

their respective affiliates or related parties (“Affiliated Party”), if the Affiliated 

Party is not a party to the contract with the client, and would be required to enter 

into a contract with the client in order to receive compensation in respect of the 

transaction. 

h. Exculpatory Provisions 

The Department should also clarify that limitations on disclaimers do not preclude 

a financial professional or financial institution from specifying in the contract that it is 

only responsible as a fiduciary for the specific role assumed in connection with the 

transaction (e.g., a particular transaction or account). 

 
48 

i. Impact on Institutional Retirement Services Businesses

 The manner in which the Proposal is intended to affect entities providing 

institutional retirement services is unclear. Such providers interface regularly with plan 

sponsors, plan investment committees or their consultants about investment options 

offered and may be perceived as providing a recommendation. When plan sponsors, plan 

investment committees, or their consultants ask questions regarding current investment 

options, they may perceive responses as providing a recommendation even if such 

responses were intended to be informational. 

In addition, such entities may respond to RFPs by providing a sample investment 

option line-up. Such service providers will receive fees from the provision of their 

services, but the fees and services provided do not necessarily have any correlation to 

investments. This would be true, for example, with respect to entities that will have sold 

insured products, such as variable annuities or group annuity contracts. 

 Institutional retirement services providers will also be called upon to provide 

information and advice regarding investments made prior to the effectiveness of the BIC 

Exemption, which may or may not be on the list of assets approved for investment by the 

Department under the proposed BIC Exemption. But the fee arrangements will not be 

affected by the information or recommendations provided. Such institutions likely have 

no individual contracts with the individuals whom they serve under such arrangements. 

If the assets underlying the arrangement are invested in investments not covered by the 

BIC Exemption, we are concerned the financial professional or institution cannot provide 

information that could be considered a recommendation even though there is no fee 

associated with such advice, and perhaps no recommendation being made. 

 FSR asks the Department to define with greater specificity what constitutes a 

“recommendation” for purposes of the BIC Exemption. We further ask the Department 

to confirm that any recommendation not to take action will not be treated as investment 

advice for purposes of the BIC Exemption, unless such recommendation will result in a 

specific fee to the financial professional or the institution. Finally, FSR asks the 

Department to exempt responses to RFIs and RFPs, which by definition, would not be a 

contract between the financial professional or institution and the plan sponsor, plan 

investment committee, and/or their consultants. 

The Department should also exempt the provision of advice between investment 

choices by a provider which does not receive any incremental fee for providing 

information or any recommendation that leads to a change in investment made by a 

Retirement Investor. In providing such information or such a recommendation, an entity 

providing such services cannot be acting in its own interests, if no additional fee or 

compensation is received. There is no benefit to a Retirement Investor, and no 

impropriety to be addressed, by imposing the conditions of the BIC Exemption in such 

circumstances. Where the fees that are received are related to the services of providing 
49 

the platform for investment, or the investment vehicle under which the investment is 

made, and the services associated with the recordkeeping thereunder, and the 

administration thereof, there is no fiduciary type breach that needs to be addressed by the 

BIC Exemption. 

If the Department still determines that the BIC Exemption should apply in such 

circumstances, it should provide that the only condition of the BIC Exemption that needs 

to be satisfied in respect of this kind of institutional retirement services is complying with 

the Impartial Conduct Standards, so long as the compensation payable with respect to 

such arrangement is not directly affected by any information or recommendation 

provided with regard to the selection of alternative investments. 

j. Impact on Retirement Investors’ Personal Financial Privacy and Data 

Security

As proposed, under the BIC Exemption the Department has the right to request 

that an institution relying on the Exemption provide the Department far-ranging personal 

financial data on the institution’s clients who are served in reliance on the BIC 

Exemption. Given widespread public concern about governmental and private entities’ 

collection and use of individuals’ data in light of recent revelations concerning the 

National Security Agency and other government entities,67 we believe clients would hold 

 67 See, e.g., Gregory C. Wilshusen, Director, Information Security Issues, Information Security: 

Cyber Threats and Data Breaches Illustrate Need for Stronger Controls across Federal Agencies, 

Testimony Before the Subcommittees on Research and Technology and Oversight Committee on 

Science, Space, and Technology, House of Representatives, GAO-15-758T at 2 (July 8, 2015) 

(finding that concerns about cyber-based threats to federal systems “are further highlighted by recent 

incidents involving breaches of sensitive data and the sharp increase in information security incidents 

reported by federal agencies over the last several years, which have risen from 5,503 in fiscal year 

2006 to 67,169 in fiscal year 2014”), available at http://www.gao.gov/assets/680/671253.pdf; 

Gregory C. Wilshusen, Director, Information Security Issues, Cybersecurity: Recent Data Breaches 

Illustrate Need for Strong Controls across Federal Agencies, Testimony Before the Subcommittee on 

Cybersecurity, Infrastructure Protection, and Security Technologies, Committee on Homeland 

Security, House of Representatives, GAO-15-725T (June 24, 2015) (warning that “[until] federal 

agencies take actions to address these challenges—including implementing the hundreds of 

recommendations we and inspectors general have made—federal systems and information will be at 

an increased risk of compromise from cyber-based attacks and other threats), available at

http://www.gao.gov/assets/680/670935.pdf; GOVERNMENT ACCOUNTABILITY OFFICE, High-Risk 

Series: An Update, GAO-15-290 at 236 (Feb. 2015) (finding that the “number of reported security 

incidents involving [personally identifiable information] at federal agencies has increased 

dramatically in recent years”), available at http://www.gao.gov/assets/670/668415.pdf. See also, 

Cory Bennett, OPM hack hit over 22 million people, THE HILL (July 9, 2015) (reporting that “more 

than 22 million people have had their personal information stolen” from the U.S. Office of Personnel 

Management), available at http://thehill.com/policy/cybersecurity/247410-report-opm-hack-hit-over25-million-people; Patrick Zengerle and Megan Cassella, Millions more of Americans hit by a 

government personnel data hack,” REUTERS (July 9, 2015), available at 

http://www.reuters.com/article/2015/07/09/cybersecurity-usa-idUSKCN0PJ2MQ20150709; Chris 

Strohm, U.S. Hack May Have Disclosed 18 million Social Security Numbers, BLOOMBERG BUSINESS
50 

the firm responsible for any harm derived from transmitting the clients’ personal financial 

data to the Department or from the Department’s handling of such data, especially 

because these clients’ will be unfamiliar with the role served by the Department. This is 

especially true with regard to IRA owners, since the Department has no enforcement 

authority over the conduct of their accounts, even with respect to prohibited transactions. 

As a result, concerns over the access to their personal data are likely to damage 

institutions’ relationships with their clients. 

 FSR does not understand the need for the institutions to provide this data to the 

Department, especially with regard to IRA accounts over which it has no enforcement 

authority. The Department has deputized each investor and his lawyers to enforce 

compliance with the BIC Exemption through the required contract. Such an investor will 

have access to his own records, and can cause his legal counsel to provide that data to the 

appropriate tribunal to seek recourse for any violation of an institution’s requirements. 

 As the Government Accountability Office (the “GAO”) notes, “the ineffective 

protection of cyber assets can result in the loss or unauthorized disclosure or alteration of 

information, [which] could lead to serious consequences and result in substantial harm to 

individuals and to the federal government.”68 The GAO further noted technological 

advances have enabled individuals and organizations “to correlate [personally identifiable 

information] and track it across large and numerous databases.”69 

In our view, it does not appear that the Department proposes to obtain the type of 

data that would be necessary to compare the investment performance results of clients 

from one financial professional and/or institution to clients of any other financial 

 (June 24, 2015) (reporting that the “agency that manages U.S. government personnel records is 

investigating whether Social Security numbers for as many as 18 people were taken in the massive 

cyber-attack”), available at http://www.bloomberg.com/news/articles/2015-06-24/u-s-hack-mayhave-disclosed-18-million-social-security-numbers; Devlin Barrett, Danny Yadron, and Damian 

Paletta, U.S. Suspects Hackers in China Breached About 4 Million People’s Records, Officials Say, 

WALL ST. J., (June 5, 2015) (reporting on the alleged theft of personnel records “in one of the most 

far-reaching breaches of government computers”), available at http://www.wsj.com/articles/u-ssuspects-hackers-in-china-behind-government-data-breach-sources-say1433451888?KEYWORDS=office+of+personnel+management; Lisa Rein, “$21 million tab to 

taxpayers for clean up after massive Chinese hack of federal database,” THE WASHINGTON POST (June 

11, 2015), available at http://www.washingtonpost.com/blogs/federal-eye/wp/2015/06/11/nervousemployees-dial-call-centers-a-21-million-casualty-of-massive-federal-data-theft/; The Republican 

Newsroom, Poll: 57% fear U.S. government will use NSA data to harass political opponents (Jun 14, 

2013, 11:59 PM) (citing a Rasmussen poll indicating widespread fear that government-collected data 

will be used for punitive political purposes), available at 

http://www.masslive.com/politics/index.ssf/2013/06/poll_57_fear_us_government_wil.html. 

68 GOVERNMENT ACCOUNTABILITY OFFICE, High-Risk Series: An Update, GAO-15-290 at 235 (Feb. 

2015). 

69 Id. 
51 

professional and/or institution. FSR believes any benefit that the Department expects to 

derive from its publication of individual investors’ investment performance data 

aggregated by adviser will pale by comparison to the damage to the individual investors 

that could result from someone gaining improper access to this data while in the 

possession of the Department. 

 Although we do not believe the Department should publish data derived from 

clients, if the Department insists on including this provision requiring institutions to 

disclose to the Department personally identifiable financial information about the 

investment of individual clients’ accounts, we believe the Department must provide 

notice of its privacy and data security procedures, and afford the public an opportunity to 

comment. 

It is imperative that the Department implement a comprehensive, robust data 

security program to mitigate privacy and data security threats, which is compliant with 

privacy laws and regulations. At a minimum, the Department must address how it will 

protect private information, and the security protocols it will employ for handling this 

large amount of confidential data. 

For example, will system controls be based on passwords or on more robust 

authentication processes? What measures will the Department take to ensure that the 

data it collects will not be leaked or hacked? How will the Department ensure that 

transmissions from institutions will be secure? We are not, of course, requesting that the 

Department provide highly sensitive information regarding the security system it will 

implement, but it would helpful to know, in at least a general form, the nature of the 

security standards it will implement. 

Unless the Department agrees to such a program, it should not seek such 

personally identifiable financial information on millions of individual clients that have 

retirement assets held at—or managed by—financial professionals and/or financial 

institutions. 

k. We ask the Department to Clarify that Employer-Sponsored Welfare 

Benefits and Similar Arrangements, and Certain Distributions Directly 

into Insurance Products Are Not Subject to the Best Interest Contract 

Exemption

Exclusion for Employer-Sponsored Welfare Benefits. The Department has 

requested comment on whether the Proposal should be extended such that arrangements 

in addition to IRAs that are subject to the prohibited transaction provisions of the Code 

would also become subject to the Proposal and service providers in respect of such 

arrangements would be required to comply with the BIC Exemption. 
52 

FSR submits that the Proposal should not be expanded to apply to employersponsored welfare benefit plans (such as health, long term care and disability insurance) 

or individually created health spending products, or to the use of (or advice to use) 

ERISA-governed investment accounts to pay for such plans. These arrangements are not 

established for the purpose of retirement savings, but for the purpose of providing the 

underlying benefits to the beneficiaries. The amounts invested are extremely modest 

relative to retirement savings. Layering onto such arrangements the complexity and costs 

that will be associated with complying with the BIC Exemption can be expected to 

significantly curtail the appetite of employers to establish these welfare benefit plans that 

are designed to benefit their employees, and to limit the avenues of investment for 

individually established arrangements to low return investments such as bank deposits. 

FSR respectfully submits that even if IRAs should be brought into the scope of 

the rules that would pertain to participant directed retirement accounts under ERISA, 

doing so for these employer-sponsored welfare benefit plans, individually established 

health spending accounts, and educational savings accounts would negate the 

Congressional intent of promoting the establishment of such vehicles, which are not 

established for retirement. Accordingly, we urge the Department to exempt these 

arrangements in the final rule. 

Exclusion for Insurance Contract Sales. We further submit that the Proposal 

should not apply to insurance contract sales to welfare benefit plans that do not have an 

investment component. The essence of the Department’s proposed rulemaking is 

directed toward the provision of investment advice to Retirement Investors. We note that 

insurance contracts that provide no opportunity for investment gains or losses would not 

give rise to any need for the Retirement Investor to seek advice concerning investment of 

the assets related to the insurance contract. FSR urges the Department to clarify in the 

final rule that insurance contract sales to welfare benefit plans that do not have an 

investment component are excluded from coverage by the Proposal and the Proposed BIC 

Exemption. 

Exclusion for Distributions Directly into Insurance Products. FSR also asks the 

Department to clarify in the final rule that the Proposal and the Proposed BIC Exemption 

do not apply to distributions from qualified plans directly into an annuity or insurance 

product. 

l. Call Center Personnel 

FSR submits that call center personnel should not automatically be considered 

fiduciaries in providing general information to plan participants or beneficiaries. Call 

centers are an effective way for financial institutions to provide affordable customer 

service to Retirement Investors. In the typical call center arrangement, the staff assists 

Retirement Investors with navigating information concerning the operation of their 

retirement savings plan. Because they do not provide investment advice, their role is 
53 

ministerial—not fiduciary. Accordingly, FSR urges the Department to clarify in the final 

rule that call center personnel are excluded from coverage by the Proposal. 

XII. FSR’s Simple Investment Management Principles and Expectations 

Prohibited Transaction Class Exemption (the “SIMPLE PTE”)

FSR proposes for the Department’s consideration a framework for a prohibited 

transaction class exemption under ERISA for the provision of investment advice and 

guidance70 in lieu of the Department’s Proposal, the proposed BIC Exemption, and the 

proposed amendments to currently-existing PTEs. 

a. Background

In the past, the Department issued prohibited transaction exemptions that permit 

plan investments in conflicted circumstances based on the presence of protections for 

plan participants and beneficiaries linked to the reasonableness of the compensation 

received. These exemptions have operated effectively to provide important investment 

opportunities for plans and their participants and beneficiaries, without adverse 

consequences to those parties. 

FSR believes that the Congressional model of imposing requirements to 

appropriately manage the possible adverse consequences of the potential conflicts—

rather than trying to eliminate them—should be invoked to resolve the concerns that have 

given rise to the Department’s Proposal and the proposed BIC Exemption. 

The supporting statements for the Department’s Proposal suggest that, inherent in 

the development of the BIC Exemption is a presumption that the lowest cost investment 

advice is the best advice for each and every Retirement Investor. Such a presumption 

does not reflect reality in any marketplace. 

The most obvious example that lowest cost is not always best is the experience of 

the market for terminal pension annuities that existed in the early 1990’s, when one 

carrier, Executive Life Insurance Company, was consistently the lowest cost option for 

providing annuities to terminating defined benefit plans. But Executive Life provided the 

lowest cost because it used an aggressive investment policy that led to its eventual 

demise. The plan participants who were to receive their benefits from the annuities sold 

by Executive Life would have been severely damaged if other insurance companies had 

not stepped up as part of the applicable guarantee associations to make good on the failed 

promises of the lowest cost provider Executive Life, when it was taken over by the State 

of California. In light of this circumstance, the Department issued Interpretative Bulletin 

 70 See, APPENDIX B, “FSR’s Simple Investment Management Principles and Expectations Prohibited 

Transaction Class Exemption (the “SIMPLE PTE”). 
54 

95-1 to advise fiduciaries that they should not opt for the lowest cost alternative, but 

rather choose the superior product taking into account other applicable considerations 

unrelated to cost.71 

This position is also contrary to the Department’s stated position that cost is an 

element that should be taken into account and that it is not the sole determining factor. 

As the Department notes on its website, in the document titled “Meeting Your Fiduciary 

Responsibilities”: 

 

Fees are just one of several factors fiduciaries need to consider in deciding 

on service providers and plan investments. When the fees for services are 

paid out of plan assets, fiduciaries will want to understand the fees and 

expenses charged and the services provided. While the law does not 

specify a permissible level of fees, it does require that fees charged to a 

plan be “reasonable.” After careful evaluation during the initial selection, 

the plan's fees and expenses should be monitored to determine whether 

they continue to be reasonable. 

In comparing estimates from prospective service providers, ask which 

services are covered for the estimated fees and which are not. Some 

providers offer a number of services for one fee, sometimes referred to as 

a “bundled” services arrangement. Others charge separately for individual 

services. Compare all services to be provided with the total cost for each 

provider. Consider whether the estimate includes services you did not 

specify or want. Remember, all services have costs. 

What the market teaches us is that lower cost often corresponds to lower quality, 

or reflects the economic reality that the effort required to provide the lower cost product 

is significantly less than that required in respect to other alternatives. Different costs 

frequently reflect attributes available under differing products. 

In the investment community, the costs associated with investments in hedge 

funds and private equity investments are generally significantly higher than those 

associated with the standard management of a portfolio of publicly traded securities and 

considerably higher than an investment in an S&P 500 index. But, despite the broad 

brush conclusions contained in the literature the Department relies upon to develop the 

 71 29 C.F.R. §2509-95.1. “The Department notes, however, that increased cost or other 

considerations could never justify putting the benefits of annuitized participants and beneficiaries at 

risk by purchasing an unsafe annuity.” Id. 
55 

Proposal and the proposed BIC Exemption, such different products often provide superior 

returns that justify the additional cost of such investments.72 

The operation of the BIC Exemption would likely deny Retirement Investors 

access to these higher return investment alternatives. In the context of investment advice, 

the lowest cost options generally follow a pre-established path of investment within a 

specified band of investment, while higher cost alternatives offer services that are 

designed to anticipate and respond more promptly to market changes and changing 

markets. FSR’s SIMPLE PTE will allow Retirement Investors to access the investment 

strategy that they determine best serves their particular investment goals and objectives, 

while assuring that prudent advice and guidance are provided, which is intended to 

provide the Retirement Investors the opportunity for appropriate returns commensurate 

with the risks taken, which reflect their individual circumstances. 

Unlike the Department’s extremely complex Proposal, the FSR SIMPLE PTE 

would preserve Americans’ access to professional financial advice and guidance to help 

them plan and save to meet their unique financial needs in retirement. The FSR SIMPLE 

PTE also would enable Retirement Investors to work with their preferred adviser or 

broker, and pay for that advice or guidance in the manner of their choosing. 

The FSR SIMPLE PTE is intended to address the Department’s stated public 

policy goals while reducing the potential for conflicting regulatory requirements on 

persons that are also subject to substantive regulation under state or federal laws of their 

investment-advice or brokerage businesses (e.g., banking, commodities, insurance, or 

securities). The currently-existing prohibited transaction class exemptions would remain 

in place because these exemptions work well for Retirement Investors. 

b. The FSR SIMPLE PTE Codifies a Best Interest Standard 

The best interest standard would be deemed met if at the time the 

recommendation is made, the financial product or service recommended is in the best 

interests of the particular client, because the recommendation: 

(1) reflects the care, skill, prudence, and diligence under the circumstances thenprevailing that a prudent person would exercise; and 

(2) provides the client the opportunity for an appropriate return, risk exposure, or 

benefit, taking into account the client’s investment objectives, risk profile and 

tolerance, financial circumstances and needs, and the role of the recommendation 

 72 A recent study showed that private equity funds generally outperformed an S&P 500 Index by 

between 20 and 27% over the life of the fund. Harris, Jenkinson and Kaplan, Private Equity 

Performance: What Do We Know, J. FIN., 1851-1882 (Sept 12, 2014). 
56 

as part of the client’s overall investment portfolio, as disclosed to the financial 

professional by the client. 

It would not be a violation of the FSR SIMPLE PTE for financial professionals 

and/or institutions to recommend or sell only proprietary or other limited range of 

products or services, or to recommend itself as the provider of services that are 

considered by the financial professional/institution to be in the best interest of the 

particular client, with appropriate disclosures to the client of the nature of products and 

services available from that person. 

Nor would it be a violation of the FSR SIMPLE PTE to recommend products or 

services for which the financial professional and/or institution receives variable 

compensation if the compensation is reasonable and the particular product or service is in 

the best interest of the particular client, with appropriate disclosures to the client of the 

nature or products and services available from the financial professional and/or 

institution. 

c. Best Interest Standard Does Not Preclude Receipt of Reasonable 

Compensation

The compensation that would be permitted to be received by the financial 

professional and/or institution in making any such best interest recommendation would 

be an amount that is not in excess of prevailing market rates or practices for investments 

in that specific product type. For example: The financial professional recommends to the 

client a mutual fund that is primarily engaged in the investment of domestic securities, 

which charges fees within a range of fees commonly charged by funds of similar size and 

with similar investment objectives. The aggregate fees received by the financial 

professional and institution would be deemed reasonable compensation if the financial 

professional and institution collectively receive third party payments that are also within 

the range of payments generally made by such similarly situated mutual funds, and that 

has been disclosed in the mutual fund disclosure documents. 

Reasonable compensation under the FSR SIMPLE PTE would include only direct 

and indirect compensation—not gifts or gratuities, except those that are considered de 

minimis (i.e., less than $250 in the aggregate per annum), or as otherwise permitted by 

applicable law. 

Annuity transactions, variable annuity contracts in-force, and mutual funds used 

in advisory programs would be eligible for coverage by the FSR SIMPLE PTE, or may 

also continue to be governed by currently-existing PTE 84-24. 

It would not be a violation of the reasonable compensation standard for a broker 

or dealer subject to regulation by the Commission or FINRA to receive compensation at 
57 

levels that comply with Commission or FINRA regulations, and to disclose its 

compensation in conformity with applicable securities laws and Commission or FINRA 

regulations. 

Similarly, any compensation received by an insurance agent or insurance 

company that is subject to regulation by insurance authorities of any state or territory of 

the United States that is permitted to be received under applicable insurance law or 

regulations also would be deemed reasonable compensation. 

d. The FSR SIMPLE PTE Provides for Clear and Concise Disclosures of 

Compensation and Material Conflicts of Interest in “Plain English” 

Financial Professionals or institutions relying on the FSR SIMPLE PTE must 

provide “plain English” narrative disclosures to clients that present a clear and concise 

summary of (1) the compensation arrangements for the financial professional or 

institution; (2) if applicable, the proprietary or other limited range of products or services 

that are available from that person; (3) material conflicts of interest of the financial 

professional and/or institution; and (4) how the financial professional or institution 

mitigate or manage the disclosed conflicts. 

Our approach builds on the results of investor testing conducted by the staff of the 

Commission, which showed that “investors prefer that disclosures be written in clear, 

concise, understandable language, using bullet points, tables, charts, and/or graphs.”73

Disclosures that satisfy applicable federal law or regulation (e.g., banking, 

commodities, futures, or securities), or applicable state law or regulation (e.g., banking, 

insurance, or securities) with respect to material conflicts, investment alternatives, etc., 

will be deemed to satisfy the disclosure requirements. 

 

 73 See, SEC. & EXCH. COMM’N OFFICE OF INVESTOR EDUCATION AND ADVOCACY, Study Regarding 

Financial Literacy Among Investors: As Required by Section 917 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act at iv (Aug. 2012) (finding that “Investors favor ‘layered’ 

disclosure and, wherever possible, the use of a summary document containing key information about 

an investment product or service”), available at http://www.sec.gov/news/studies/2012/917-financialliteracy-study-part1.pdf. 
58 

e. The FSR SIMPLE PTE Requires Advisers, Brokers, and Institutions to 

Resolve Complaints and Inadvertent Violations Promptly 

To assure appropriate oversight of compliance with the conditions of the FSR 

SIMPLE PTE, the financial professional or institution (the “Service Provider”) must 

adopt the following compliance process: 

 The Service Provider must design and implement written policies and procedures 

reasonably designed to enable the Service Provider to comply with the conditions 

of the FSR SIMPLE PTE and remediate promptly any failure to comply (the 

“Compliance Policies and Procedures”). 

 The Compliance Policies and Procedures must be tailored to the Service 

Provider’s business and operations, and must include appropriate training for 

relevant personnel who manage the Service Provider’s business and operations, or 

who interact with clients and members of the public (e.g., senior management and 

supervisory personnel; registered and licensed financial professionals; and call 

center staff). 

 The Compliance Policies and Procedures must address: 

o Compliance with the Best Interest Standard, including policies and 

procedures reasonably designed to ensure that at the time any 

recommendation is made, the Service Provider’s recommendation to the 

client (a) reflects the care, skill, prudence, and diligence under the 

circumstances then-prevailing that a prudent person would exercise; and 

(b) provides the client with an opportunity for an appropriate return, risk 

exposure, or benefit taking into account the client’s unique needs as 

disclosed to the Service Provider. 

o For purposes of the FSR SIMPLE PTE, the term recommendation means a 

communication that, based on its content, context, and presentation, would 

reasonably be viewed by an objective person as an explicit suggestion that 

the advice recipient engage in, or refrain from engaging in, a specific 

transaction or transactions; provided, however that no such 

communication (i) that is a general advertisement shall constitute a 

“recommendation” unless it includes an explicit suggestion that the 

recipient purchase or sell a specific asset; 74 and (ii) shall be considered a 

“recommendation” to continue holding an asset absent an express 

statement that the advice recipient should not sell or otherwise dispose of 

the asset. 

 74 See, e.g., FINRA Policy Statement 01-23. 
59 

o The Compliance Policies and Procedures must be reasonably designed to 

enable the Service Provider to evaluate each recommendation in light of 

the totality of information the client disclosed to the Service Provider 

concerning the client’s investment objectives; risk profile and tolerance; 

financial circumstances and needs; and the role of the recommendation as 

part of the client’s overall investment portfolio. 

o Material Conflicts of Interest, including policies and procedures 

reasonably designed to manage or mitigate the Service Provider’s material 

conflicts of interest, and ensure disclosure of material conflicts to clients. 

o Reasonable Compensation Standards adopted by the Service Provider, 

including policies and procedures reasonably designed to manage the 

Service Provider’s compliance with the conditions of the FSR SIMPLE 

PTE applicable to compensation practices (including receipt of 

compensation from third parties), and ensure disclosure to clients of the 

Service Provider’s compensation arrangements. 

o Supervisory and Internal Controls, including policies and procedures 

reasonably designed to enable business unit supervisors and compliance 

personnel to perform their respective functions. 

o The Service Provider must provide a process for the client to submit any 

complaint(s) to the Service Provider. The written complaint must include 

an explanation of the alleged failure to meet the conditions of the 

exemption, followed by an opportunity for the Service Provider to resolve 

the complaint and, if appropriate, restore the client to the place it should 

have been in had such failure not occurred. If the alleged failure is not 

resolved to the satisfaction of the client, the client could in accordance 

with the terms of any applicable client agreement seek arbitration or 

litigation of the alleged failure. 

f. The FSR SIMPLE PTE Addresses Fully the Department’s Public 

Policy Objectives for its “Investment-Advice Fiduciary” Rulemaking 

FSR submits that the combination of this client-focused best interest standard and 

appropriate measure of reasonable compensation should be more than adequate to protect 

the interests of clients without undue costs and burdens on the professionals and 

institutions serving the needs of these clients—including low and moderate-income 

clients. 
60 

With these two appropriate conditions—one to assure that the recommendation is 

in the client’s best interest and the other to limit the compensation that the financial 

professional and the institution receive to a level that would be consistent with prevailing 

market practices—FSR believes that the conditions, warranties or elaborate disclosure 

requirements that form the basis of the Department’s BIC Exemption would not be 

required or necessary. 

Finally, the FSR SIMPLE PTE’s complaint-resolution mechanism also would 

provide an effective and prompt means for financial professionals or institutions to 

address the client’s allegation of wrongdoing as well as remediate promptly violations of 

the FSR SIMPLE PTE. 

XIII. Conclusion 

 FSR and its members appreciate and laud the Department’s objective of 

protecting the interests of Retirement Investors against improperly motivated advice, and 

support the concept of strengthening the already applicable laws and regulations designed 

to protect them. But applying an expansive scope of the prohibited transaction provisions 

of ERISA and the Code are not the proper means to achieve this end. These provisions 

were designed for different purposes and preclude any person taking action when 

conflicts of interest exist. These statutory provisions do not presume that all such actions 

are improper, but for administrative convenience preclude all such actions. 

The Proposal and the BIC Exemption should be modified to ensure that client 

choice in the manner of accessing retirement investment advice is preserved. A 

commissioned-based investment model is the only choice for many Retirement Investors, 

and can be the lowest cost choice in many instances desired by clients,75 that generally 

works in the best interests of clients. It is a model that has long been utilized in 

commercial practices, and is subject to oversight and regulation by the Commission, 

FINRA, and various state regulatory agencies, including insurance and securities 

regulators. Yet, it does appear from the design and structure of the Department’s 

Proposal, as well as the public commentary by officials at the Department, that the 

Department perceives a commission-based model as inherently unfair to clients. FSR 

does not share that view, and believes that this view is contrary to that of the agencies 

generally responsible for the oversight and regulation of insurance and investment 

activities. 

 As is illustrated by the commentary set forth in this APPENDIX A, FSR believes 

that the Department’s Proposal and the proposed BIC Exemption would create a 

 75 OLIVER WYMAN, ASSESSMENT OF THE IMPACT OF THE DEPARTMENT OF LABOR’S PROPOSED 

“FIDUCIARY” DEFINITION RULE ON IRA CONSUMERS 12 (2011) (noting that many low- and moderateincome investors prefer a commission-based fee structure over a fee-based advisory relationship),

available at http://www.dol.gov/ebsa/pdf/WymanStudy041211.pdf. 
61 

regulatory régime that will require an entire overhaul of how financial professionals, 

institutions, and others do business with retirement plans and Retirement Investors, and 

that places undue and unnecessary burdens and restrictions on the individuals and firms 

who will be deemed to be “fiduciaries” under the Department’s re-engineering of the 

definition of “investment advice.” 

We believe it is a reasonable assumption that many financial professionals and 

institutions will cease to provide services to Retirement Investors, or to those with small 

to modest account balances, and to small businesses that would adopt modest retirement 

programs. It is these investors who need the greatest level of assistance to plan and save 

to meet their unique needs in retirement, but the BIC Exemption is likely to reduce access 

to that assistance. 

The expenses and increased legal liability exposure inherent in the BIC 

Exemption that is the centerpiece of the Department’s Proposal, and its numerous, 

complex and elaborate conditions will drive the cost of providing services to Retirement 

Investors up dramatically (if such services are at all available to low and moderateincome Americans). While it is conceivable that the Proposal will force financial 

professionals and institutions into a “fee-for-service” model with respect to some 

segment of the market, it is likely that many clients, especially those with small to modest 

account balances and those who are “buy-and-hold” investors,76 will find that model 

unacceptable, and forego the assistance that may be made available thereunder. 

Thus, it is FSR’s view that the Proposal will have the contrary effect to the 

objective that the Department intends to achieve—which is helping Retirement Investors. 

If adopted substantially as proposed, our expectation is that the review of efficacy will be 

“the operation was a success, but the patient died.” 

On the other hand, the FSR SIMPLE PTE would meet the Department’s policy 

goals without imposing the burdens of the Proposal or the BIC Exemption on Retirement 

Investors or the financial professionals and institutions that serve them. The SIMPLE 

PTE would maintain access to professional investment advice and guidance, and help 

savers meet address their unique financial needs in retirement, and make those savings 

last a lifetime. Finally, the SIMPLE PTE would preserve American’s flexibility to work 

 76 Securities broker-dealers also will have to weigh whether placing clients with “small or modest 

account balances” in a fee-for-service advisory program would comply with applicable securities law 

requirements. See, e.g., SEC. & EXCH. COMM’N, OFFICE OF COMPLIANCE INSPECTIONS AND 

EXAMINATIONS (“OCIE”), Examination Priorities for 2015 at 2 (Jan. 13, 2015) (noting the risks 

arising from financial professionals that offer a variety of fee arrangements to retail investors, OCIE’s 

2015 exam focus will consider “recommendations of account types and whether they are in the best 

interest of the client at the inception of the arrangement and thereafter, including fees charged, 

services provided, and disclosures made about such relationships”), available at

http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2015.pdf. 
62 

with their preferred adviser, and to pay for retirement products and services in the manner 

of their choosing. Accordingly, we recommend that the Department adopt the SIMPLE 

PTE in lieu of the Proposal and the proposed BIC Exemption. 

* * * * * 
63 

APPENDIX B 

FSR’s Simple Investment Management Principles and Expectations Prohibited 

Transaction Class Exemption

General Information 

 The attention of interested persons is directed to the following: 

(1) The fact that a transaction is the subject of an exemption under ERISA 

section 408(a) and Internal Revenue Code (Code) section 4975(c)(2) does not relieve a 

fiduciary or other party in interest or disqualified person with respect to a plan or 

individual retirement account (IRA) from certain other provisions of ERISA and the 

Code, including any prohibited transaction provisions to which the exemption does not 

apply and the general fiduciary responsibility provisions of ERISA section 404 which 

require, among other things, that a fiduciary discharge its duties respecting the plan solely 

in the interests of the participants and beneficiaries of the plan. Additionally, the fact that 

a transaction is the subject of an exemption does not affect the requirement of Code 

section 401(a) that the plan must operate for the exclusive benefit of the employees of the 

employer maintaining the plan and their beneficiaries; 

(2) Before an exemption may be granted under ERISA section 408(a) and Code 

section 4975(c)(2), the Department must find that the exemption is administratively 

feasible, in the interests of plans and their participants and beneficiaries and IRA owners, 

and protects the rights of participants and beneficiaries of the plan and IRA owners, 

respectively; 

(3) If granted, the proposed exemption is applicable to a particular transaction 

only if the transaction satisfies the conditions specified in the exemption; and 

(4) The proposed exemption, if granted, will be supplemental to, and not in 

derogation of, any other provisions of ERISA and the Code, including statutory or 

administrative exemptions and transitional rules. Furthermore, the fact that a transaction 

is subject to an administrative or statutory exemption is not dispositive of whether the 

transaction is in fact a prohibited transaction. 

Dates: Written Comments: Written comments concerning the proposed class exemption 

must be received by the Department on or before [Insert date that is 60 days following 

publication in the Federal Register]. All comments received will be made a part of the 

record. Comments should state the reasons for the writer’s interest in the proposed class 

exemption. 
64 

Addresses: All written comments concerning the proposed class exemption should be 

sent to the Office of Exemptive Determinations by any of the following methods, 

identified by ZRIN: 1210-ZA[__]: 

Federal eRulemaking Portal: http://www.regulations.gov at Docket ID number: 

EBSA-2014-00[__]. Follow the instructions for submitting comments. 

Email to: e-OED@dol.gov. 

Fax to: (202) 693-8474. 

Mail: Office of Exemptive Determinations, Employee Benefits Security 

Administration, (Attention: D-11712), U.S. Department of Labor, 200 Constitution 

Avenue, NW, Suite 400, Washington, DC 20210. 

Hand Delivery/Courier: Office of Exemptive Determinations, Employee 

Benefits Security Administration, (Attention: D-11712), U.S. Department of Labor, 122 

C Street, NW, Suite 400, Washington, DC 20001. 

Instructions. All comments must be received by the end of the comment 

period. The comments received will be available for public inspection in the Public 

Disclosure Room of the Employee Benefits Security Administration, U.S. Department of 

Labor, Room N-1513, 200 Constitution Avenue, NW, Washington, DC 20210. 

Comments will also be available online at www.regulations.gov, at Docket ID number: 

EBSA-2014-00[__] and www.dol.gov/ebsa, at no charge. 

Warning: All comments will be made available to the public. Do not include 

any personally identifiable information (such as Social Security Number, name, address, 

or other contact information) or confidential business information that you do not want 

publicly disclosed. All comments may be posted on the Internet and can be retrieved by 

most Internet search engines. 

For Further Information Contact: Karen E. Lloyd or Brian L. Shiker, Office of 

Exemption Determinations, Employee Benefits Security Administration, U.S. 

Department of Labor (202) 693-8824 (this is not a toll-free number). 

 *** 

 
65 

Proposed Simple Investment Management Principles and Expectations Exemption 

Section I—Best Interest Exemption 

(a) In general. ERISA and the Internal Revenue Code (Code) prohibit a 

fiduciary with respect to an employee benefit plan (Plan) and any individual retirement 

account (IRA) from receiving compensation that varies based on its investment 

recommendations. Similarly, a fiduciary is prohibited from receiving compensation from 

third parties in connection its advice. 

This exemption permits certain persons who provide investment advice or 

guidance to Retirement Investors (as defined in Section VI, below), and their associated 

Financial Institutions, Affiliates and other Related Entities (each as defined in Section VI, 

below), to receive such otherwise prohibited compensation as described below. 

(b) Covered transactions. This exemption permits Advisers, Financial 

Institutions, and their Affiliates and Related Entities to receive compensation for products 

or services provided in connection with the following: (i) an acquisition, disposition or 

holding of an asset or an interest in an investment program by a Plan, participant or 

beneficiary account, or IRA, as a result of the Adviser’s and/or Financial Institution’s 

advice to any Retirement Investor, including, without limitation, Recommendations with 

respect to proprietary or other limited range of products or services or products or 

services that give rise to Third Party Payments; or (ii) distributions, “rollovers,” transfers 

of property or assets of the Plan or IRA. The exemption provides relief from the 

restrictions of ERISA sections 406(a)(1)(D) and 406(b) and the sanctions imposed by 

Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(D), (E) and (F). 

The Adviser and Financial Institution must comply with the provisions of Sections II-IV, 

below to rely on this exemption. 

(c) Exclusions. This exemption does not apply to the following: 

(1) The compensation is received as a result of investment advice to a Retirement 

Investor generated solely by an interactive Internet website in which computer softwarebased models or applications provide investment advice based on personal information 

each investor supplies without any personal interaction or advice or guidance from an 

individual Adviser (i.e., so-called “robo-advice”); or 

(2) The Adviser or Financial Institution (i) exercises any discretionary authority 

or discretionary control respecting management of the Plan or IRA assets involved in the 

transaction or exercises any authority or control respecting management or disposition of 

such assets; or (ii) has any discretionary authority or discretionary responsibility in the 

administration of the Plan or IRA. 
66 

Section II—Impartial Conduct Standard and Other Requirements 

(a) Impartial Conduct Standard. (1) When providing investment advice to the 

Retirement Investor regarding any asset of a Plan or IRA or any interest in an investment 

program in which a Plan or IRA participates or will participate, the Adviser and/or 

Financial Institution will provide investment advice that is in the “Best Interest” of the 

Retirement Investor. The best interest of the Retirement Investor means that at the time 

any Recommendation is made, the Adviser and/or Financial Institution’s 

Recommendation to the client: (i) reflects the care, skill, prudence, and diligence under 

the circumstances then-prevailing that a prudent person would exercise; and (ii) provides 

the Retirement Investor with an opportunity for an appropriate return, risk exposure, or 

benefit taking into account the Retirement Investor’s unique needs as disclosed by the 

Retirement Investor to the Adviser and/or Financial Institution. Under this standard, the 

Adviser and/or Financial Institution must evaluate any Recommendation made to a 

Retirement Investor in light of the totality of information the Retirement Investor has 

disclosed to the Adviser and/or Financial Institution concerning the Retirement Investor’s 

investment objectives, the Retirement Investor’s risk profile and tolerance, financial 

circumstances and needs, and the role of the Recommendation as part of the Retirement 

Investor’s overall investment portfolio; and 

 (2) When providing investment advice to the Retirement Investor regarding a 

Plan or IRA or any interest in an investment program in which a Plan or IRA participates 

or will participate, the Adviser and/or Financial Institution will not make a 

Recommendation with regard to such asset or interest if the compensation anticipated to 

be received by the Adviser, Financial Institution, Affiliates and Related Entities in 

connection with the acquisition, disposition or holding of the asset or interest by the Plan, 

participant or beneficiary account, or IRA, will exceed Reasonable Compensation. The 

term Recommendation is defined in Section VI, below. 

(b) Conditions. The Adviser and/or Financial Institution shall: 

(1) Adopt written policies and procedures reasonably designed to mitigate the 

impact of Material Conflicts of Interest (as defined in Section VI, below) on any 

Recommendation and ensure that its individual Advisers adhere to the Impartial Conduct 

Standards set forth in Section II (a), above; and 

(2) Identify Material Conflicts of Interest and adopt measures reasonably 

designed to ensure compliance with the Impartial Conduct Standards set forth in Section 

II (a), above. 

 
67 

(c) Disclosures. The Adviser and/or the Financial Institution must provide clear 

and concise disclosures in “plain English” to the Retirement Investor covering the 

following items: 

(1) Identify and disclose any Material Conflicts of Interest, and the policies that 

the Adviser and/or Financial Institution have in place to mitigate the impact of any such 

Material Conflicts of Interests; 

(2) Inform the Retirement Investor of its right to obtain (and when requested, to 

provide the Retirement Investor with) complete information about the fees associated 

with the asset or interest being recommended to be acquired, disposed of or held, that are 

paid or payable to the Adviser, Financial Institution, and any Affiliates, including all 

direct and indirect fees. Such disclosures shall be made in a manner consistent with the 

requirements applicable to covered service providers under Section 408(b)(2) of ERISA; 

provided, that any disclosures made that satisfy applicable federal securities or state 

banking or insurance law or applicable regulations thereunder with respect to Material 

Conflicts of Interests and the direct and indirect fees paid or payable to the Adviser, 

Financial Institution, or any of their respective Affiliates will be deemed to satisfy the 

disclosure requirements set forth in this Section II(c)(2); and 

(3) Disclose to the Retirement Investor whether the Adviser and/or Financial 

Institution offers Proprietary Products or receives Third Party Payments with respect to 

the recommended acquisition, disposition or holding of an asset of a Plan or IRA or any 

interest in an investment program in which a Plan or IRA participates or will participate. 

Section III—Compliance Processes 

(a) Compliance Processes. To assure compliance with the conditions in Section 

II of this exemption, the Adviser and/or Financial Institution must implement the 

following compliance processes: 

(1) Adopt written policies and procedures reasonably designed to ensure that the 

Adviser and/or Financial Institution complies with the conditions of the exemption. The 

policies and procedures must be tailored to the business and operations of the Adviser 

and/or Financial Institution, and must include appropriate training for relevant personnel 

who manage the Adviser’s and/or Financial Institution’s business and operations and the 

persons who interact with Retirement Investors, including Advisers and call center and 

other customer service staff. 

 (2) Adopt written policies and procedures reasonably designed to remediate 

promptly any failure to comply with the conditions of this exemption. Such policies 

would include a process for the Retirement Investor to submit a written complaint 
68 

describing the alleged failure to meet the conditions of the exemption, which would be 

followed by an opportunity for the Adviser and/or Financial Institution to resolve the 

complaint. If the compliant accurately reflects a failure to comply with the otherwise 

applicable provisions of the exemption, the policies would require that the Adviser and/or 

Financial Institution promptly restore the Retirement Investor to the same position as it 

would have been in had such failure not occurred. If the correction is properly 

implemented, the Adviser and/or Financial Institution will be deemed to be in compliance 

with this exemption. 

Section IV—Recordkeeping 

(a) Recordkeeping. The Adviser and/or Financial Institution maintains for a 

period of six (6) years, in a manner that is accessible for examination, the records 

necessary to enable the persons described in paragraph (b) of this Section IV to determine 

whether the Adviser and/or Financial Institution has met the conditions of this exemption; 

provided that: 

(1) If the records are lost or destroyed due to circumstances beyond the 

reasonable control of the Adviser and/or Financial Institution, then no prohibited 

transaction will be considered to have occurred solely on the basis of the unavailability of 

those records; and 

(2) No party, other than the Adviser and/or Financial Institution responsible for 

complying with the provisions of paragraph (a) of this Section IV, will be subject to the 

civil penalty that may be assessed under ERISA section 502(i) or the taxes imposed by 

Code section 4975(a) and (b), if applicable, if the records are not maintained or are not 

available for examination as required by paragraph (b), below. 

(b) (1) Except as provided in paragraph (b)(2) of this Section IV (and 

notwithstanding any provisions of ERISA section 504(a)(2) and (b)), the records referred 

to in paragraph (a) of this Section IV are unconditionally available at their customary 

location for examination during normal business hours by: 

(A) Any authorized employee or representative of the Internal Revenue Service; 

(B) Any authorized employee or representative of the Department with respect to 

Plans subject to ERISA; 

(C) Any fiduciary of a Plan that engaged in an acquisition, disposition or holding 

of an asset or interest in an investment program which is acquired, disposed of or held in 

reliance on this exemption, or any authorized employee or representative of such 

fiduciary; or 

 
69 

 (D) Any participant or beneficiary of a Plan or IRA owner that engaged in the 

acquisition, disposition or holding of an asset or interest which is purchased, disposed of 

or held in reliance on a Recommendation made by the Adviser and/or Financial 

Institution under this exemption, or any authorized employee or representative of such 

participant, beneficiary or owner. 

(2) None of the persons described in paragraph (b)(1)(C) and (D) of this Section 

IV are authorized to examine privileged trade secrets or privileged commercial or 

financial information, of the Adviser and/or Financial Institution; or information 

identifying other individuals. 

Section V—Exemption for Pre-Existing Transactions 

Covered transaction. Subject to the applicable conditions described in this 

Section V, the restrictions of ERISA section 406(a)(1)(D) and 406(b) and the sanctions 

imposed by Code section 4975(a) and (b) shall not apply to the receipt of compensation 

by an Adviser, Financial Institution, and any Affiliate and Related Entity, in connection 

with the acquisition, holding or disposition of any asset or interest, as a result of the 

Adviser’s and/or Financial Institution’s advice, that was purchased, disposed of, or held 

by a Plan, participant or beneficiary account, or an IRA before the Applicability Date. 

Section VI—Definitions 

For purposes of this exemption: 

(a) “Adviser” means an individual who: 

(1) Is a fiduciary of a Plan or IRA, including by reason of the provision of 

investment advice described in ERISA section 3(21)(A)(ii) and/or Code section 

4975(e)(3)(B), and the applicable regulations thereunder; and 

(2) Is an independent contractor for, or an employee, agent, or registered 

representative of, a Financial Institution. 

(b) “Affiliate” of an Adviser or Financial Institution means: 

(1) Any person directly or indirectly through one or more intermediaries that 

controls, is controlled by, or is under common control with the Adviser or Financial 

Institution. For this purpose, “control” means the power to exercise a controlling 

influence over the management or policies of a person; 
70 

(2) Any officer, director, employee, agent, registered representative, relative (as 

defined in ERISA section 3(15)), member of family (as defined in Code section 

4975(e)(6)) of, or partner in, the Adviser or Financial Institution; and 

(3) Any corporation, partnership, or other entity of which the Adviser and/or 

Financial Institution is an officer, director, employee, or similar position; or in which the 

Adviser and/or Financial Institution is a partner. 

(c) “Financial Institution” means the entity that employs the Adviser or 

otherwise retains such individual as an independent contractor, agent or registered 

representative; and that is: 

(1) Registered as an investment adviser under the Investment Advisers Act of 

1940 [15 U.S.C. § 80b-1 et seq.] or under the laws of the jurisdiction in which the 

Financial Institution maintains its principal office and place of business; 

(2) A bank or similar financial institution supervised by the United States or any 

state or territory of the United States; or a savings association (as defined in section 

3(b)(1) of the Federal Deposit Insurance Act [12 U.S.C. § 1813(b)(1)]); 

(3) An insurance company qualified to do business under the laws of any state or 

territory of the United States; provided, that such insurance company: 

(A) Has obtained a Certificate of Authority from the insurance commissioner of 

its jurisdiction of domicile which has neither been revoked nor suspended; 

(B) Has undergone and shall continue to undergo an examination by an 

independent certified public accountant for its last completed taxable year, or has 

undergone a financial examination (within the meaning of the law of its domiciliary 

jurisdiction) by the jurisdiction’s insurance commissioner within the preceding five (5) 

years; and 

(C) Is domiciled in a jurisdiction whose law requires that actuarial review of 

reserves be conducted annually by an independent firm of actuaries and reported to the 

appropriate regulatory authority; or 

(4) A broker or dealer registered under the Securities Exchange Act of 1934 [15 

U.S.C. § 78a et seq.]. 

(d) “Individual Retirement Account” (“IRA”) means any trust, account or annuity 

described in Code section 4975(e)(1)(B) through (F), including an individual retirement 

account described in Code section 408(a), but excluding any non-retirement account 

(e.g., health savings account, education savings account, etc.). 
71 

 (e) “Material,” when used to qualify a requirement in this exemption, limits the 

information required to those matters to which there is a substantial likelihood that a 

reasonable Retirement Investor would attach importance in determining engage in—or 

refrain from engaging in—a particular action or transaction(s). 

 

(f) “Material Conflict of Interest” means an Adviser or Financial Institution has a 

financial interest that could materially affect the exercise of its best judgment as a 

fiduciary in rendering advice to a Retirement Investor regarding an asset or an interest in 

an investment program. 

(g) “Plan” means any employee benefit plan described in ERISA section 3(3), 

and any plan described in Code section 4975(e)(1)(A). 

(h) “Recommendation” means a communication that, based on its content, 

context, and presentation, would reasonably be viewed by an objective person as an 

explicit suggestion that the advice recipient engage in, or refrain from engaging in, a 

specific transaction or transactions; provided, however that no such communication (i) 

that is a general advertisement shall constitute a “recommendation” unless it includes an 

explicit suggestion that the recipient purchase or sell a specific asset; and (ii) shall be 

considered a “recommendation” to continue holding an asset absent an express statement 

that the advice recipient should not sell or otherwise dispose of the asset.

(i) “Reasonable Compensation” means an amount of compensation that is not in 

excess of prevailing market rates or practices for investments in that specific product 

type. For example, if an Adviser recommends to a Retirement Investor an investment in 

a mutual fund that is primarily engaged in the investment of domestic securities, which 

charges fees within a range of fees commonly charged generally by funds of similar size 

and with similar investment objectives, the compensation received would be deemed 

Reasonable Compensation. 

(1) Any compensation received by a broker or dealer subject to regulation by the 

United States Securities and Exchange Commission (“SEC”) or the Financial 

Industry Regulatory Authority (“FINRA”) that is otherwise permitted to be 

received under applicable SEC or FINRA regulations, in conformity with 

applicable securities laws, shall be deemed to be Reasonable Compensation. 

(2) Any compensation received by an insurance agent or insurance company subject 

to regulation by insurance authorities of any state or territory of the United States 

that is otherwise permitted to be received under applicable insurance regulations, 

in conformity with applicable insurance laws, shall be deemed to be Reasonable 

Compensation. 
72 

(3) In no event would the term Reasonable Compensation include gifts or gratuities 

that exceed de minimis amounts (i.e., less than $250 in the aggregate per annum), 

or as otherwise permitted by applicable law. 

(j) “Related Entity” means any entity other than an Affiliate in which the Adviser 

or Financial Institution has an interest which may affect the exercise of its best judgment 

as a fiduciary. 

(k) “Retirement Investor” means: 

(1) A participant or beneficiary of a Plan subject to Title I of ERISA with authority to 

direct the investment of assets in his Plan account or to take a distribution; 

(2) The beneficial owner of an IRA acting on behalf of the IRA; or 

(3) A Plan sponsor as described in ERISA section 3(16)(B) (or any employee, officer 

or director thereof) of a Plan subject to Title I of ERISA to the extent it acts as a 

fiduciary for the Plan. 

 (l) “Third-Party Payments” mean sales charges when not paid directly by the 

Plan, participant or beneficiary account, or IRA owner; or “rule 12b-1” fees (within the 

meaning of 17 C.F.R. § 270.12b-1) and other payments paid to the Financial Institution 

or an Affiliate or Related Entity by a third party as a result of the acquisition, disposition 

or holding of an asset or interest in an investment program by a Plan, participant or 

beneficiary account, or IRA owner.